Australia’s big banks pass on all rate hikes – but not the cuts

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Photo: Rick Rycroft/AP

Australia’s big banks are benefiting from a period of rapid rate hikes, with rising margins and soaring share prices. At the same time, many households are feeling the strain of rising mortgage rates and inflationary food and electricity costs.

While banks have been quick to pass on the Reserve Bank’s nine rate hikes since May last year, they have not passed on all of the previous cuts.

After a long period of stable interest rates, the RBA lowered the official interest rate from 1.5% to 1.25% in June 2019. Five further reductions followed in the run-up to and in the first months of the Covid-19 pandemic.

All changes in the RBA cash rate since 2019 can be seen in the chart below. The RBA began cutting interest rates in mid-2019 – already at historic lows since the global financial crisis. There were two cuts in March 2020, the second in response to the pandemic.


ANZ was the only major retail bank to cut its floating rate on home loans a second time in March 2020 as part of its Covid support package, data from comparison website Canstar shows, although it did not disclose the full cut.

Australia’s Competition and Consumer Commission has launched an investigation into how banks set interest rates for savers, as recent rate hikes have not been fully passed on to deposit accounts.

The data shows that the big banks do not automatically pass on reductions in loans when interest rates are cut, but they do pass on increases.

The official policy rate is now 1.85 percentage points above pre-June 2019 levels. But over the same period, the standard variable-rate home loan rate offered by all four major banks has risen by more than two percentage points, according to Canstar data.


The change in the standard variable interest rate at the Commonwealth Bank, the country’s largest lender, is more than half a percentage point higher than the cash rate over the period after failing to fully pass through five cuts in 2019 and 2020, the CBA said recently posted a record semi-annual cash gain.

The National Australia Bank also recently reported a huge increase in quarterly profit. Both the CBA and NAB have acknowledged rising interest rates as drivers of higher revenue. Both banks are enjoying rising margins as the difference between the interest they earn on loans and the amount they pay depositors — captured by the net interest margin — has widened.


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