Banks face growing financial pressure to withhold some of any cut in official interest rates from their mortgage customers this week, due to very low rates being paid on deposits.
However, bank-watchers said the lenders would need to wear a significant hit to their profit margins in order to pass on another cut of 0.25 percentage points to mortgage customers, and fully passing on any future cuts beyond that would take an even bigger bite out of profits.That is because as rates on savings accounts fall, it becomes increasingly tough for banks to lower their deposit rates by the standards 0.25 percentage point RBA move.
The closer interest rates get to zero, the harder it is for banks to pass it on for mortgages, because they cannot adjust for it elsewhere.Deposits account for more than 60 per cent of the major banks' funding. According to comparison website RateCity, all of the big four banks now pay a "base" interest rate of just 0.3 per cent on a key type of savings account.
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