Banks make millions in delaying interest rate cuts

When Australia's central bank moves interest rates as part of its monetary policy, it's not just politicians who stand to lose if banks don't follow suit. Retail lending markets form an integral part of the monetary policy transmission mechanism. If interest rate rises are passed on at a different rate to cuts it can adversely affect the efficacy of expansionary versus contractionary monetary policy. In August 2016, APRA data showed the big four Australian banks held 83% of the home loan market (including both the owner occupier and investment categories). At an individual level, the ability and willingness of lenders to pass on the official interest rate cuts to borrowers depends on many factors. These include exposure to overseas funding sources, market power, the funding mix, reserves and the extent of securitisation. But it's also clear delaying interest rate cuts can significantly impact their bottom line.