The most recent drop of .25 basis points has not been passed on in full by the major banks. By not passing on the full cut when interest rates are on the decline, the banks take up an opportunity to increase their profit margins without upsetting consumers too much, who are still receiving a discount.
Some industry commentators have claimed that the banks are justified in doing this. The Australian Banker's Association have recently come out in defense of banks, stating they are justified in not passing on the full rate cut, as lending costs have increased.
Simon Müchenberg, Chief Executive of the ABA, stated that lending costs for banks have increased by up to 50 basis points in the last year.
'The Reserve Bank understands the cash rate is just one component of the true cost of banks' funding, and therefore does not expect banks and other lenders to exactly match every movement,' said Mr Müchenberg.
Lending costs for banks are dependent on overseas markets. For every dollar Australian banks lend out, 33 cents must be sourced from overseas. With many global markets still suffering the effects of the GFC [...]