Banks urged to pass on full rate cut to small business – and quickly

The rate cut to 4.25% has been welcomed by business groups and retailers alike, but there are concerns that business customers will continue to wait longer than home owners for their rates to fall, and will receive a smaller cut than mortgage holders.

The major banks have yet to respond to the Reserve Bank’s 25 basis point cut rate despite pressure from the Government to pass it on in full.

Shadow Small Business Minister Bruce Billson warns small business do not want a repeat of last month when they had to “wait over a week while some with home loans had their rate adjusted within hours”.

Financial comparison site Mozo says of the 17 business lenders in its database, 12 have moved some or all of their variable lending rates since the November rate cut. The average rate decrease was 0.23%, it says, and the average time taken to move was 21 days.

“By comparison, lenders took just 15 days on average to implement rate reductions on variable rate home loans,” Mozo says.

It adds that looking at the previous two rate cuts – in April 2009 and February 2009 – Westpac was the only ‘big four’ bank to cut business loan rates in line with its home loan rates.

“In both months the majority of business lenders kept their business loan rates under review for more than two weeks, and even then only a handful passed on the full cut to business customers,” Mozo says.

“Many business customers received no rate cut at all.”

And although yesterday’s rate cut was welcomed by retailers, with the Australian Retailers’ Association saying it would save the silly season, others have pointed to the Reserve Bank’s dovish tone in its statement and worrying developments in Europe.

ANZ Banking Group and National Australia Bank both expect the central bank to cut again when it meets again in February.

“Will this be the end of it? We think not,” NAB economists said in a note.

The economists said that although the RBA is “not signalling a sequence of cuts is likely from here”, it seems likely that “by the next board meeting, the outlook for global growth will be worse and we expect the next inflation outcome, due in late January, to be another low reading”.

“The directional bias for rates from here will be down for the next two or three quarters. Hence, there is scope for another cut in rates to 4% at the February meeting.”

ANZ said after the rate cut: “With global risks likely to remain heightened (and still potentially worsen), the Australian price pressures well contained, and domestic unemployment still likely to head higher, we see little risk that domestic inflation will be ignited by the further boost to growth afforded by another modest monetary policy easing”.

It adds that although the statement does not indicate whether the cut has “shifted monetary policy to an explicitly ‘easy’ stance”, the board “must now see downside risk to its domestic economic forecasts”.