WESTPAC has followed its rivals in raising interest rates on its variable mortgages by 25 basis points, preferring to follow the Reserve Bank after its super-sized rates move late last year caused a political storm.
National Australia Bank also raised its mortgage rates by 25 basis points yesterday, after official interest rates moved to 4 per cent this week. Bendigo Bank was last night also preparing to lift rates by the same amount.
For Westpac, the latest move takes its standard variable home lending rate to 7.01 per cent, giving it one of the highest mortgage rates.
In December, Westpac sparked a furore after it lifted interest rates by 45 basis points, nearly twice the central bank's rate rise. It blamed higher funding costs, particularly for long-term funding.
Each of the big banks has also increased rates on its high-interest online savings accounts by 25 basis points, highlighting the intense competition for deposits.
From this morning, ANZ's standard variable rate will be at 6.91 per cent, with the Commonwealth Bank at 6.86 per cent.
NAB, whose variable mortgage rate is 6.74 per cent, continues to undercut its rivals despite its profit margins being squeezed by rising funding costs in the first quarter.
The bank said yesterday that funding costs were expected to continue rising over the year, with competition for deposits remaining high while wholesale funding costs remained inflated.
Australian banks are also under pressure from regulators to increase the length of their funding books by taking on more long-term debt, which is more expensive.
NAB chief executive Cameron Clyne has said he is prepared to absorb costs now to rebuild the bank's retail business.
In contrast, recent earnings updates have revealed that the other major banks have fattened their interest margins over the past few months, mostly as they have re-priced business loans.
Of the big four lenders, ANZ led the pack, boosting its margins 14 basis points in the first quarter while CBA notched up a 13-basis-point increase on the half-year.
While short-term funding costs have fallen closer to pre-crisis levels, CBA chief executive Ralph Norris said recently the average cost of funding continues to climb.
''We're in a situation where we're still seeing a continual roll of low-cost funding being replaced with high-cost funding,'' he told an investor briefing.
