Big banks fail to pass on full interest rate cut

THE Commonwealth Bank is the first of the big four financial institutions to respond to the Reserve Bank of Australia's decision to slash the official interest rate to 1.5%.

Financial experts predicted the cut, saying it was needed to fuel growth  particularly after last week's ABS June quarter inflation data that showed consumer growth was 1% in the past year - well below the RBA's preferred target of 2-3%.

Moments after the RBA's announcement, CommBank confirmed it would pass on some of savings to its home loan holders and while increasing term deposit rates for small businesses.

The CommBank's standard variable rate mortgages will drop 0.13%, to "a record low" 5.22% and the rate for investor loans will fall to 5.49%.

The bank will lift interest on some saving products by 0.55%.

CoreLogic head of research Tim Lawless  said the RBA was probably spurred along by a slowdown in dwelling value growth.

But he said the primary reason for the cut was the low inflation reading over the June quarter and strong Aussie dollar. 

Mr Lawless said passing on the cash rate cut to mortgage rates would see a "renewed level of scrutiny on the housing market".

"Policy makers (will be) wary of a reversal in the slowing housing market growth trend," he said.

"A resurgence of growth could trigger a new round of regulation from the Australian Prudential Regulation Authority aimed at limiting growth in investment lending and/or tightening loan to valuation ratio requirements for lenders.  

"The latest interest decision is likely to keep a base level of demand across the housing market.

"However,  other factors such as affordability constraints, higher supply levels, tighter lending conditions and weak rental markets are likely to see growth conditions continue moderating back to more sustainable levels." - ARM NEWSDESK

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