June 4, 2019 / 7:55 AM / 4 months ago

Australia shares end slightly firmer aided by banks, miners

* ANZ to cut mortgage rates by 18 bps vs 25 bps policy cash rate cut

* CBA, NAB announce 25 bp cut to mortgage rates

* A2 Milk, Synlait down after China aims to raise output of baby formula (Updates to close)

By Devika Syamnath

June 4 (Reuters) - Australian shares ended slightly higher on Tuesday, bolstered by miners and the “Big Four” banks, after the country’s central bank cut its cash rate to a record low.

Australia’s S&P/ASX 200 index closed 0.2%, or 11.9 points, higher at 6,332.4. The Big Four banks ended between 0.4% and 0.8% higher.

Shares of Australia and New Zealand Banking climbed after the country’s third-largest lender held back from passing on the entire policy rate cut to customers - cutting its standard variable mortgage rate by only 18 basis points.

Australia’s central bank cut its cash rate to a record low 1.25% amid growing calls for policymakers to revive the country’s slowing economy.

Lower interest rates usually translate to slimmer earnings for banks from the yield on cash reserves they hold.

Shares in CBA pared some gains after it announced it would pass on the full rate cut and lower mortgage rates by 25 basis points. After the market close, National Australia Bank also complied with a full rate cut.

Nick Twidale, chief operating officer at Rakuten Securities Australia, said that passing on the rate cut in full could lead to margin contraction and raise questions about the ability of banks to maintain the generous dividends they usually pay.

“...when you’re cutting rates and you’re already at 1.25%, it does not leave you a lot of wiggle room,” Twidale said.

Australian Treasurer Josh Frydenberg, who had reportedly urged banks to pass on the rate cut in full, responded to ANZ’s decision and told reporters in Melbourne that the bank has “let down its customers,” and put profits before people.

Mining stocks finished 0.8% higher, after having lost 3.5% over the previous four sessions when geopolitical risks, principally over the escalating Sino-U.S. trade war, had raised doubts about growth and weighed on global risk sentiment.

BHP Group and ended 1.4% and 1.5% higher, respectively.

Elsewhere, oil prices fell as an economic slowdown started to dent energy demand, affecting Australian energy stocks that ended 0.6% lower. Woodside Petroleum gave up 1.4%.

New Zealand’s benchmark S&P/NZX 50 index closed 1.6% lower at 9,951.93.

China aims to increase local production of baby formula so that more than 60% of the market can be supplied domestically, according to a document.

This could crimp income for dairy product makers with exposure to China such as Synlait Milk Ltd and A2 Milk Company. Their shares declined 2.5% and 10.8%, respectively.

Reporting by Devika Syamnath in Bengaluru Editing by Jacqueline Wong

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