Wayne Swan Warns Banks Not To Raise Interest Rates In Excess Of RBA Rate Hike

Post by NeilMc on October 12, 2009 · Under Australian Economy, Business News, Company News, banking, home loans, interest rates, mortgages · Comment

Federal Treasurer Wayne Swan, has warned Australia’s Big Four banking groups that Australians would get ”quite angry” if they raised their mortgage rates in excess of interest rate hikes initiated by the Reserve Bank of Australia.

Mr. Swan made the comments whilst announcing measures to improve the ability of smaller regional lenders to offer mortgages and compete more effectively in mortgage lending with the Big Four, who between them control over 86 per cent of the market for new mortgages.

Currently the Big Four banking groups have raised their standard variable mortgage rates by 25 basis points, in line with the 25 basis point interest rate hike by the Reserve Bank of Australia last week.

Last week however, Westpac subsidiary RAMS increased its mortgage rate by 35 basis points, according to a report published in the Brisbane Times.

”I can’t see any justification for the four majors to further increase their rates over and above any decision that is taken by the Reserve Bank,” Mr. Swan said in Brisbane on Sunday.

Mr. Swan also announced that the Federal Government would begin investing in residential mortgage backed securities (RMBS) issued by smaller regional lenders, in a bid to boost their competitiveness and increase the level of competition that exists in mortgage lending.

RMBS are effectively mortgages which are packaged up and resold to investors. The Government undertaking to buy such securities issued by smaller, regional lenders means that a large buyer exists in the market, creating a floor price for such securities and providing liquidity to a market that has effectively been shut for the last 12 months.

The government has committed to buying $8 billion of such securities issued by smaller regional banks, and follows similar undertakings which took place in September and October last year, and is in addition to the sovereign guarantee which was also imposed to ensure lenders had access to funding.

”Competition puts downward pressure on rates and it’s very important that we have a competitive mortgage market,” Mr. Swan said.

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