Australian Banks To Raise Variable Interest Rates As Early As Wednesday

Post by Sharat on October 7, 2009 · Under Australian Economy, Business News, Capital Markets, Online Savings Account, banking, interest rates, mortgages · Comment

In response to Tuesday’s surprise 25 basis point increase in official interest rates by the Reserve Bank of Australia, Australia’s lenders will begin lifting their variable rates of interest as early as Wednesday.

The Big Four banking groups, Westpac, NAB, CBA and ANZ all said they were reviewing their respective interest rates.

The banking majors however are unlikely to pass on any more than the full increase in official interest rates to their customers, after facing a intense pressure from the Federal Government, and in particular Treasurer Wayne Swan.

Some market analysts suggest that the increase in deposit rates may in fact be less than the hike in official interest rates. The reason for this is, banks have been forced to pay higher than normal rates of interest on deposits, as result of intense competition by lenders for those deposits, as they sought more stable sources of funding during the global financial crisis.

One market observer believes that interest rates for online deposit accounts could touch 5 per cent.

The last time official interest rates rose, was in March 2008, when the RBA hiked official rates by 25 basis points, to 7.25 per cent.

RBA Governor Glenn Stevens, in his statement, said that the justification for nearly half century low interest rates had now passed, prompting his decision to start tightening.

“With growth likely to be close to trend over the year ahead, inflation close to target and the risk of serious economic contraction in Australia now having passed, the board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy,” Mr. Stevens said.

Currently CBA and NAB offer the lowest variable interest rates amongst the Big Four, at 5.74 per cent. In June, CBA raised its variable interest rates by 10 basis points, a move which was independent of the central bank’s interest rate policy.

Westpac and ANZ variable rates stand at 5.81 per cent.

Of the Big Four banking groups, NAB undertook the largest cut in its interest rates since the central bank started its rate easing policy in September 2008, cutting interest rates by an accumulated 387 basis points.

CBA has cut 384 basis points. ANZ has cut 381 basis points whilst Westpac cut by 380 basis points.

The common reason that all major lenders have cited for either not passing on in full, cuts in official interest rates to their customers, or raising interest rates independent of the central bank, has been increased funding costs.

NAB on Tuesday said that the cost of funding its deposits, which account for 50-60 per cent of its total funding, has risen by between 100 to 120 basis points over the last 12 months, with the lender expecting increases well into the next year.

Long term whole sale funding costs have also increased, through the cost of domestic debt has declined. However, because term debt was issued for 2-5 year periods, NAB has been rolling over debt at higher prices, which increased its average cost.

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