Out-of-cycle cuts unlikely

by Adam Smith11 Apr 2013

A new report has dismissed the idea of out-of-cycle rate cuts despite easing funding costs for banks.

The J.P. Morgan Australian Mortgage Industry Report has pointed to improved wholesale funding positions for Australia's banks, but analyst Scott Manning said borrowers shouldn't hold their breath for out-of-cycle cuts.
"Overall, we expect the likely wholesale funding benefits in the coming years to be largely invested in the ongoing extension of wholesale funding to replace existing maturities, increased new loan discounting or strategies to attract higher value deposits, as well as supporting the expansion of net interest margins to sustain earnings growth," he said.
Manning concedded that banks were in a stronger position, with falling wholesale funding costs providing "a modest net interest margin tailwind". But Manning said that funding costs had been elevated for some time, and that it would take a sustained improvement for the average cost of funds to come down.
"Moreover, out-of-cycle rate reductions are likely to be contingent upon improvements in deposit pricing, which we are approaching with a degree of caution," he said.


  • by BJ 11/04/2013 12:51:32 PM

    Of course not, out of cycle may not sit well with shareholders and thus Gail Kelly and all other bank CEO’s might see their abhorrent bonus pool shrink. Note that CEO salary and bonuses now exceed Pre GFC levels and why you may ask, well the profit driver and complacent borrowers and brokers results in bank CEO’s, dare one say, rip and tear!