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Lenders enjoying lower cost of funds – should mean lenders pass on full rate cuts.

According to new research the cost of funds to lenders is falling, which should translate into lenders passing on in full any future RBA cuts.

Last night, it was reported in commercial media that the Commonwealth Bank of Australia had raised $2 billion this week from overseas investors at a cost substantially lower than that incurred by the bank in 2012.

Additionally, Westpac is reported to have sent a confidential note to investor clients in which it described the fall in wholesale funding costs over the past year as “extraordinary”.

The obvious conclusion is that this recent drop in wholesale funding costs; the price lenders have to pay to borrow money, would ultimately put pressure on Australia’s lenders to pass on any Reserve Bank cash rate cuts in full.

It has even been reported that we should not be surprised to see some lenders even move out of cycle with the Reserve Bank. If this happens, it would be the first time in a long time that any of Australia’s lenders have dropped their rates out of cycle with the RBA.

It seems the “headwinds” facing many lenders may have eased, and this can only benefit borrowers.

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