But the banks have also moved to reduce their own costs in other ways, led by deep cuts in their savings rates.
The NAB on Tuesday became the seventh bank in the past week to cut a savings rate, lopping 0.1 percentage point off the introductory rate for its iSaver account. The introductory rate is now 0.8 per cent while its base rate is 0.05 per cent.
All of the major banks have cut their general or introductory savings accounts as well as their term deposit rates over recent months. The average rate on a three-year term rate is now a record low 0.87 per cent.
Financial information firm Canstar found people would have to micro-manage their savings to qualify for bonus rates or move their money to another institution every few months to earn introductory rates.
The firm’s group executive for financial services, Steve Mickenbecker, said with the RBA slashing overall funding costs, the nation’s banks did not have to offer high savings rates to attract customers.
“Banks are under less pressure to raise funds from savers and we have seen savings interest rates continue to slide through the pandemic. Perhaps that’s an unanticipated consequence of the measure to fund business through the crisis,” he said.
Banks have also reported a lift in savings as consumers have sliced their spending. The household savings ratio last quarter reach its highest level since 1974.
Financial markets put the chance of a further cut in the official cash rate next week at two in three.
Apart from cuting the cash rate to 0.1 per cent, analysts believe the RBA will take other lending rates as close to zero as possible.
TD Securities’ senior Asia-Pacific rates strategist Prashant Newnaha said while expectations were strong for a rate cut, the bank may hold fire until it sees the size of stimulus likely to flow from the federal budget.
“In our view the main benefit the RBA would obtain from waiting till then would be clarity on federal and state budgets to help it calibrate its quantitative easing program,” he said.
Capital Economics senior strategiest Marcel Thieliant said a rate cut plus an increase in government bond purchases next week would send a strong signal the RBA was doing everything possible to support the economy.
But there was a risk it could hold back a month because of the federal budget.
“Announcing additional government bond purchases at a time when the government is unveiling record-high budget shortfalls may create the impression that the bank is monetising the deficit,” he said.
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Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.