The Commonwealth Bank of Australia (CBA) has outlined the timeline for passing on a potential interest rate cut to its nearly two million mortgage customers, should the Reserve Bank of Australia (RBA) decide to lower the official cash rate.
The RBA is set to meet on Tuesday, where it will determine whether to hike, hold, or cut the cash rate from its current 13-year high of 4.35 per cent. The decision is expected to have significant financial implications for Australian homeowners, with a Yahoo Finance survey revealing that 19 per cent of respondents are at risk of having to sell their homes if rates remain unchanged.
CBA Signals a Quick Response to a Rate Cut
CBA CEO Matt Comyn stated in an interview with 9News that the bank would make a decision on mortgage rate adjustments relatively quickly if the RBA announces a cut.
“I think you can expect a decision relatively quickly [on mortgage rate cuts],” Comyn said.
“It’ll be communicated through a variety of channels that probably typically take effect in something like 10 days… Might be slightly faster than that.”
Although financial institutions determine their own rates independently, history suggests that banks do not always pass on RBA rate cuts in full. Between 2015 and 2020, the RBA reduced rates 10 times, yet CBA, NAB, and ANZ only implemented four of those cuts for borrowers, while Westpac passed on just two.
How Much Could Borrowers Save?
The potential savings for mortgage holders depend on loan size and the extent of the rate cut. Canstar has estimated potential monthly savings based on a 0.25 percentage point reduction in rates:
- $600,000 loan: $92 per month
- $750,000 loan: $115 per month
- $1,000,000 loan: $154 per month
These figures assume an owner-occupier with a 25-year loan term at an average variable rate of 6.33 per cent.
Mortgage Debt Reaches Record Highs
The discussion on rate cuts comes as new research reveals that the average mortgage size for owner-occupiers has reached a record high of $666,000. According to Australian Bureau of Statistics (ABS) data, the average loan amount has increased across all states and territories except Victoria.
Between December 2023 and February 2024, the national average loan size increased by $52,000, equating to an additional $142 per day in debt for borrowers.
Will the Rba Cut Rates This Month?
The Big Four Banks have made varying predictions regarding the timing and extent of rate cuts in 2024.
Here’s what they expect:
- Commonwealth Bank: 4 cuts, reducing the cash rate from 4.35% to 3.35%
- Westpac: 4 cuts
- NAB: 5 cuts, bringing the rate down to 3.1%
- ANZ: 2 cuts, reducing the rate to 3.85%
Money markets indicate a 93 per cent probability that the RBA will announce a rate cut at its upcoming February 18 meeting.
Economic Indicators Point To Slowing Inflation
The RBA’s decision will largely be influenced by inflation trends. The latest ABS data shows that annual inflation fell to 2.4 per cent, with underlying inflation—a key measure used by the RBA—easing to 3.2 per cent, its lowest level in three years.
If the RBA decides to cut rates, borrowers banking with CBA can expect a rate adjustment to take effect within two weeks. However, whether all lenders will pass on the full reduction remains uncertain.
