Third straight Reserve Bank interest rate cut tipped

Economists are confident the Reserve Bank will cut the cash rate when it meets tomorrow, but the interest rate cuts appear to be having little impact on demand for business banking services.

Thirteen out of 14 economists surveyed by AAP say the RBA will reduce the cash rate from 4.25% to 4% tomorrow, following cuts of 25 basis points in its previous two meetings.

In December, RBA governor Glenn Stevens said the eurozone crisis is likely to hurt economic activity over the period ahead, warning financing conditions have become much more difficult.

The news comes on the back of new research by East & Partners, which recently released its latest Business Banking Sentiment Index.

The bi-monthly index, of business sentiment toward banks, is based on a survey of 4,600 middle-market and SME customers’ companies, including micros (turning over $1-5 million per annum).

The report reveals that in the two months since November 2011, there has been a 3.5% decrease in the demand for business banking services across micro, SME and mid corporate businesses.

Out of the four big banks, NAB has experienced the sharpest decline in demand for business banking services from its customers, recording a drop of 4.5%.

The Commonwealth Bank experienced the smallest decline in demand for its products, recording a drop of 2.3% over the past two months.

Amy Nixon, East & Partners head of client services, mirrored Stevens’ comments by saying the 2012 credit climate has the potential to be challenging and is clouded by economic uncertainty.

“The impact can be seen in these BBSI outcomes as businesses are changing their behaviour to conserve and prepare for the bumpy road ahead,” Nixon says.

“The flat demand for credit… could be influencing demand for all business banking products and, as flat credit demand continues, it is likely that the demand for business banking products will decrease further.”

Meanwhile, Federal Treasurer Wayne Swan warns customers will be “very angry” if the banks fail to pass on any interest rate cuts in full, encouraging customers to shop around.

“Their customers will be very angry if they don’t pass through in full… I say to their customers, have a look round,” Swan said.

“You’ve got a greater capacity to shop around now than you’ve ever had before.”

“We know that the banks – the four major banks – have a lot of power but there are a lot of competitors out there that can deliver a better deal.”

Westpac home loan customers are still waiting for the bank to pass on the two pre-Christmas interest rate cuts.

But new Treasury data shows banking sector reforms, including bans on mortgage exit fees, are encouraging more customers to take their business elsewhere.

In the five months since the reforms were implemented, 320,000 households have taken out no exit fee loans.

From July 1, customers will be able to switch deposit accounts with the stroke of a pen.

“Lenders now have to win the loyalty of their customers with good service and competitive lending rates,” Swan said.

“Banks can no longer assume that once a customer signs on the dotted line, they’ll stick with them.”