The Commonwealth Bank of Australia is the first bank to pass on some of the central bank's rate cut, lowering its standard variable home loan rate by 58 basis points.
A short time ago the Reserve Bank of Australia surprised some in the market with a bigger than expected rate cut of 75bps to take the official cash rate to 5.25 per cent.
Most market analysts had expected a rate cut of 50bps.
While the CBA has been quick off the mark to announce a rate cut, it may be forced to explain to Federal Treasurer Wayne Swan why it did not pass on the full rate cut.
"If they can't (pass the rate cut) in full they'd better have a pretty good explanation," Mr Swan said yesterday.
CBA retail banking services group executive Ross McEwan said the bank is unable to pass on the full rate cut due to a significant increase in the cost of funding over recent weeks
"Raising long term funds remains extremely difficult and expensive," Mr McEwan said.
Similarly, the cost of short term onshore funding has increased in recent weeks and we are also experiencing increased costs in retail deposits.
"While we are not reducing our variable home loan rate by as much as the RBA, we do expect global financial markets to normalise over time and once that does occur we will be able to reduce rates by more than the RBA adjustments."
CBA's complete home loan variable rate will fall to 7.74 per cent, from 8.32 per cent, while its economiser base variable rate will fall to 7.23 per cent, from 7.81 per cent.
The rates are effective from November 10.
Meanwhile, Police & Nurses Credit Society has promised to pass on the full 0.75 per cent rate cut to its members.
The cut follows P&N's guarantee last month to cut rates by 0.2 per cent.
Both cuts will come into effect on November 10.
