Major Lenders Not Expected To Raise Rates Out Of Synch With RBA

Post by Sharat on January 29, 2010 · Under Australian Economy, Business News, banking, home loans, interest rates, mortgages · Comment

Australia’s Big Four lenders are unlikely to raise interest rates in excess of the expected central bank increase in official interest rates next week, according to market analysts.

The big four are not expected to raise their interest rates beyond the 25 basis point hike widely expected by the Reserve Bank of Australia when it meets next week.

Most economists and financial markets believe that a 25 basis point rate rise is imminent, and the overnight cash rate will be raised to 4 per cent from its current 3.75 percent.

NAB and ANZ are expected to match the RBA rate increase, whilst Westpac and CBA are expected to raise their interest by less than the official rise in interest rates.

Westpac’s 45 basis point increase in interest rates in December last year was widely criticized, with the lender saying it was forced to raise its raise its rates by that amount in response to a decline in its margin.

This time around however, many analysts believe that the lender is not under the same kind of pressure and has no need to raise its interest rates beyond that of the RBA.

Mr Lim said Westpac’s December rate hike of 45 basis points was spectacular but the bank was no longer under as much pressure to pass on higher interest rates to its customers.

An analysis of interest rates by a financial comparison website suggests that over the last couple of years, the major lenders have raised their interest rates in line with that of the central bank.

However when the central bank began easing interest rates rapidly, in response to the global financial crisis, from seven per cent to near half century lows of 3 per cent, the majors passed on just 386 basis point of a 400 basis point cut in official interest rates.

Between April and October last year, the average standard variable rate offered by the big banks was almost double the RBA’s 49-year-low cash rate of three per cent.

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