UPDATE: Australia's ANZ Passes on Central Bank Rate Cut in Full

--ANZ passes on RBA's 25 basis point rate cut in full to customers

--ANZ variable mortgage and small business rates cut to 6.80%

--Move ramps up pressure on major lenders to cut rates

(Adds funding costs in 7th-9th paragraphs; Treasurer's comments in 10th paragraph)

 
   By Caroline Henshaw 
 

SYDNEY--Australia & New Zealand Banking Group Ltd. (ANZ.AU) on Friday became the first of Australia's banks to pass on this week's 25 basis point rate cut by the central bank in full to its customers.

From June 15, ANZ will lower its variable mortgage and small business lending interest rates to 6.80%, or about A$13.50 in savings per week on an average mortgage of A$280,000.

On Tuesday, the Reserve Bank of Australia reduced the cash rate to its lowest level since 2009 at 3.50% in a bid to boost slowing growth in the economy.

"This decision recognises that, although we need to be realistic about funding costs and the challenges the global economic situation is presenting, ANZ also needs to absorb its share of the burden," said Philip Chronican, the chief executive of ANZ's Australian operations.

Regional lender Bank of Queensland Ltd. (BOQ.AU) and ING Direct have both cut their variable mortgages by 20 basis points since the RBA cut.

ANZ Bank's move will ramp up pressure on Australia's other major lenders--Commonwealth Bank of Australia (CBA.AU), National Australia Bank Ltd. (NAB.AU) and Westpac Banking Corp. (WBC.AU)--which have yet to announce any changes to their own rates. Much of their decision hinges on the cost of raising funds overseas, which has surged as Europe's debt crisis has hit confidence.

Westpac's head of government and industry affairs Brett Gale said in a recent submission to a Senate enquiry that 3-year-term international funding costs have risen 160 basis points since 2007, while 5-year term funding costs have increased by 200 basis points.

"Funding costs remain elevated as a result of the deteriorating economic situation in Europe and strong competition for deposits," said ANZ's Chronican.

Treasurer Wayne Swan, who strongly criticized the big four banks when they held back part of the RBA's 50 basis point cut last month, said after ANZ's announcement that "the heat is really on the other banks" to follow ANZ in passing on the full cut to customers.

Write to Caroline Henshaw at [e-mail]