Consumer confidence is struggling as the big banks are reluctant about passing on the full rate cut of the Reserve Bank.

Consumer sentiment fell by 5 percent in March and 1.6 percent in April for Westpac-Melbourne Institute. And this month, it rose by only 0.8 percent. This is due to the grim news about Europe that plagued the households, as well as the unwillingness of the big banks to pass on the rate cut.

This is also seen to pose another challenge to the banks as the housing credit growth remains at 35 year lows.

“Disappointing” given the surprise 50 basis point cut from the RBA in May, as well as the surprise fall in the jobless rate to 4.9 per cent from 5.2 per cent. There might have been a degree of disappointment amongst households that the standard variable mortgage rate was reduced by ‘only’ an average of 37 basis points,” said Mr. Bill Evans, Westpac Chief Economist.

“This soft response in confidence will be a disappointment for the Reserve Bank,” he added.

Westpac had indicated the need to cut by 50 basis points in order to lower rates to the level that was seen in December when the RBA cut rates went from 4.25 percent to 3.75 percent.

Victor German of Nomura Equities said the banks had restrained demands for loans because even after the RBA made its most recent cuts, they held onto margins still.

“As we go into the next few years … the banks will continue retaining some of their reductions or otherwise relative to the Reserve Bank,” he said. “Given all the funding pressures the banks are facing in the medium term, they will still need to widen their spreads on the lending side,” said Mr. German.

Ben Jarman of JPMorgan that confidence was stabilized by the May rate cut. However, customers are still affected by the new rates strategy of the big banks.

“Despite the fact that the 50 basis point cut was delivered with an eye toward the banks’ probably incomplete pass-through … from the perspective of households, the fact that 37 basis on average has been passed on has left them feeling shortchanged,” he said.