* Moves fuel speculation for Reserve Bank rate cut
* Aussie dollar knocked lower
* Market prices 160 bps of RBA cuts over 12 months
(Adds Westpac rate cut, analyst's comment)
SYDNEY, Aug 9 Australia's two biggest home
lenders cut interest rates on fixed mortgages on Tuesday,
fuelling market expectations of an official rate cut to counter
the gloom on world markets and knocking the local currency
Commonwealth Bank of Australia (CBA) , the nation's
biggest home lender, slashed its fixed mortgage rate by up to 60
basis points and rival Westpac trimmed its three-year
fixed mortgage rate by 20 basis points.
The two banks, which control more than 40 percent of
Australian home lending, made their move against the backdrop of
sliding share markets and fears of a double-dip U.S. recession
and another global economic slowdown.
The CBA's announcement, which preceded Westpac, knocked
almost half a cent off the already-battered Australian dollar
, reinforcing market assumptions that the Australian
central bank would be forced to abandon its tightening bias and
instead opt for a near-term rate cut to support the economy.
"The banks are responding to the fall in long-term interest
rates as the yield curve has inverted after expectations of an
interest rate rise gave way to a cut," said banking analyst John
Buonaccorsi, of RBS Equities.
"The other banks might well follow but that doesn't mean
they will cut their variable rate just yet. The fixed rate
market is small , probably under 10 percent."
The vast majority of domestic banks' home-loan assets are on
variable rates, which are finely tuned to the overnight cash
rate targeted by the Reserve Bank of Australia. Banks seldom
adjust variable rates ahead of any change in the cash rate.
Over the next 12 months, the money market is pricing in
almost 160 basis points of cuts to the 4.75 percent cash rate.
Australia, a major exporter of minerals and farm grains, is
geared heavily to China, the world's fastest growing major
economy. Its fortunes are also tied to commodity prices, many of
which have slumped along with world share markets this week.
CBA, which faces stiff competition from local rivals,
especially National Australia Bank , said its new fixed
rates for loans from one to 5 years would now range from 6.59 to
Westpac cut its three-year fixed rate to 6.75 percent.
(Reporting by Wayne Cole, Mark Bendeich and Narayanan
Somasundaram; Editing by Balazs Koranyi)