Cash goes to mortgages, not tills

Australians are paying down their mortgages rather than spending their cash in a sign the Reserve Bank's interest rate cut may fail to boost the economy.

As Westpac cut its standard variable rate by more than the Reserve's quarter percentage-point reduction, bank figures show how few people will spend the windfall. Between 45 per cent and 85 per cent of customers at the big four banks are at least a month ahead in their mortgage repayments.

At Westpac more than 20 per cent of its mortgage customers are at least two years ahead on their home loans.

The proportion of those ahead on their repayments has steadily climbed over the past two years despite official interest rates holding at near record lows.

Westpac's group executive of retail and business banking, Jason Yetton, said more than 67 per cent of his bank's customers were ahead in their repayments.

"The smart use of an offset account combined with lower interest rates including the cut will help our customers realise their dream of home ownership a lot sooner," he said.

Both the Commonwealth and Bankwest cut their standard rates by a quarter percentage point, taking them to 5.65 per cent and 5.64 per cent respectively.

But all banks are offering heavy discounts on their standard rates, with most customers enjoying effective mortgage rates at or below 5 per cent. The Reserve moved on rates for the first time in 18 months, saying it was concerned about the strength of the domestic economy.

NAB's quarterly business survey highlighted the economy's issues, with confidence among firms falling and trading conditions edging down towards the end of last year.

Financial markets are banking on the Reserve cutting the cash rate even further, to 2 per cent by May and perhaps 1.75 per cent by year's end.