Rates to go higher by year end
The CBA and ANZ kept their rate rises in line with the RBA's move of 0.25 per cent yesterday, with the official cash rate expected to hit 4.75 per cent by year end.
THE nation's biggest banks resisted raising interest rates above yesterday's move in the official cash rate, but warned that high funding costs were still pressuring mortgage rates.
Last night ANZ, Commonwealth Bank and Westpac-backed St George said they would each raise interest rates across their flagship variable mortgages by 25 basis points, matching the Reserve Bank's move.
Westpac and National Australia Bank are expected to detail rate rises today, with both likely to move in line with the central bank.
CBA, which has the biggest slice of the home-lending market, said it would increase its variable home loan rates by 25 basis points from Friday. This will take its standard variable home loan to 6.86 per cent.
ANZ's standard variable rate will increase to 6.91 per cent. Its small-business lending rates will also rise by 25 basis points. Both banks increased high-interest savings accounts by the same amount.
But ANZ's Australian operations chief, Phil Chronican, warned that high funding costs would become a ''permanent part'' of the world's financial landscape.
ANZ's latest decision on rates was a balance between ''very real commercial pressures'' and the bank's customers, as well as the community's interest in the economic recovery, he said.
Federal Treasurer Wayne Swan stepped up warnings to the banks not to increase mortgage rates by more than the RBA rise, saying there was ''no justification'' for raising rates by more than 25 basis points.
Recent profit updates by the big banks have revealed that interest margins - the difference between a bank's cost of funding and lending - have returned to levels before the onset of the global economic crisis.
The banks maintain that the increase in margins is largely due to them passing on higher interest rates to business customers. But the nation's lenders are likely to feel a funding squeeze on several fronts, which may eventually affect mortgage customers.
NAB and ANZ have recently noted that competition has started warming up in business lending, which is likely to limit their ability to push through further price increases.
Australian banks are also under pressure from regulators to increase the length of their funding books by taking on more long-term debt. While this would lower funding risks, long-term debt is more expensive than shorter-term wholesale funding.
In December, Westpac sparked a furore after it lifted interest rates by 45 basis points, nearly twice the central bank's rate rise. Westpac blamed higher funding costs, particularly long-term funding for moving above the overnight cash rate. NAB was the only big bank to cap its rate move at 25 basis points.
Surprisingly, Westpac's move has not yet slowed its lending growth. Its mortgage book grew by 1.2 per cent compared with the industry average of 0.7 per cent from January to December. This eclipsed CBA, which increased its loans by 0.7 per cent and ANZ at 0.6 per cent.
Despite pushing a lower pricing policy on mortgages, official figures show NAB is yet to have a surge in lending growth.
