Banks could use RBA hike as 'cover' for mortgage rises

Monday 04 October 2010

Article by Mozo

Australia's banks may use the next increase of the official cash rate as "a cover" for lifting home loan rates, a market analyst has said.

AMP Capital Investors chief economist Shane Oliver suggested that if the Reserve Bank (RBA) implements a rate hike at its meeting tomorrow (October 5th), banks may be tempted to increase their own interest rates further.

"The banks have been talking for some time about pressure on the cost of funds with the implication that mortgage rates might have to rise over and above (any increase in) the cash rate," he told the Herald Sun.

Last week, the Australian's quarterly economic survey of 20 economists found that the consensus is for rates to be at 4.75 per cent by December, meaning one move by the RBA, possibly tomorrow.

Any rate rise would likely prompt more Aussies to compare home loans and consider refinancing, particularly while housing affordability problems linger. According to the Herald Sun, the banks could "seize" on an official increase by pushing up home loan rates by as much as 0.45 percentage points.

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