Are the Banks About to Betray Borrowers? Why a Rate Cut Might Not Mean Relief

Aussie Banks Prepare to Withhold Rate Relief, Defying RBA’s Move

The Reserve Bank of Australia (RBA) is poised to cut the cash rate again this month, a move that many economists consider all but locked in. With inflation easing and consumer spending under pressure, the RBA is widely expected to slash rates in a bid to stimulate the economy. But while the central bank might deliver a reprieve, some lenders are preparing to deny that relief to everyday borrowers.

In fact, despite strong expectations—88 per cent of economists polled by Finder forecasted a rate cut this July—signals are emerging that several banks might hold back on passing the savings to mortgage holders. While previous cuts in February and May were broadly passed on, loan experts say this round could be different.

Why the hesitation? It comes down to cost pressures and margin management. Banks aren’t just relying on the RBA for funding. Rising wholesale funding costs and tighter profit margins are prompting some lenders to consider withholding all or part of the rate cut from existing borrowers.

Sally Tindall, insights director at Canstar, noted that banks are becoming increasingly selective with how they pass on rate movements. “They might pass on a July cut, but subsequent reductions? That’s less likely,” she said. “And they’ll probably prioritise new customers over existing ones.”

Aidan Hartley from Owl Home Loans echoed this concern, pointing to recent internal messaging from lenders that downplayed the RBA’s influence on their pricing. “There’s a high chance some lenders won’t pass the cut on,” Hartley warned. “The funding cost doesn’t align with the RBA rate drop, so they’re shifting their narrative.”

It’s a trend borrowers can’t afford to ignore. History offers a cautionary tale. During the last cutting cycle between 2019 and 2020, the major banks passed on only 80 per cent of the RBA’s total cuts.

Mid-tier lenders, particularly those who aggressively chased market share earlier this year, may now have little room to move. Their already-competitive variable rates have limited scope for further reductions. Instead, they’re expected to focus on attracting new customers with lower advertised rates, leaving loyal borrowers behind.

David Koch, economic director at Compare the Market, reminded borrowers that no law mandates lenders to mirror RBA cuts. “Discounts aren’t guaranteed,” he said. “And just because your rate drops, doesn’t mean it’s competitive. Homeowners need to shop around to ensure they’re not paying more than necessary.”

According to Finder’s Graham Cooke, “It’s a delicate balance. Lenders want to remain attractive to new borrowers but also need to protect their margins.” The first bank to withhold a rate cut risks public backlash, but that act could embolden others to follow suit.

Canstar’s Tindall warned that if a big bank breaks ranks, “the floodgates will open.” Once one moves, others are likely to feel justified in doing the same. It’s a domino effect borrowers should prepare for.

Mozo’s Rachel Wastell also emphasised the borrower’s burden. “Banks passed on all 13 rate hikes between 2022 and 2023. Now that the tide is turning, customers deserve to share in the relief,” she said. “If your lender doesn’t move, maybe it’s time to switch.”

While the RBA may be steering the macroeconomic ship, it’s clear that individual banks are navigating their own course—one that may not align with the interests of existing borrowers. But there is still power in comparison. As Koch noted, simply shopping around could save borrowers thousands. A 0.5 per cent difference in rates can equate to over $2,500 a year on a $660,000 loan.

So as Australia waits on another rate announcement, one thing is clear: relying on your current bank to do the right thing may not be the smartest move. In this climate, vigilance isn’t optional—it’s essential.

Author Bio:
Kalpi Prasad is a finance professional with years in the banking and lending sector. As the founder of Renown Lending, he advocates for transparency, smarter borrowing, and empowering Australians through financial literacy. Follow his insights on Medium and LinkedIn.