Banks 'may not pass on full interest rate increase'

Australia’s banks may not pass on the full Reserve Bank interest rate rises later this year as they seek to attract new customers.

Chris Richardson, a director of Canberra’s Access Economics, told the Courier-Mail that the competition for customers and lower funding costs would cause the major banks to absorb about 0.3 percentage points of Reserve Bank rate increases in the second half of 2010.

It is expected that the Reserve Bank will raise official rates by one per cent this year, including a 0.25 per cent rise either next month or in March.

Mr Richardson suggested that if the banks passed on only 0.7 per cent of that, homeowners with a $300,000 mortgage would save more than $60 a month.

In addition, he predicted that lenders would undercut the official rate by a further 0.4 percentage points in 2011 in order to offer further savings to homeowners.

Last week Terry Hayes, a senior tax writer at the advisory firm Thomson Reuters, warned mortgage buyers to be aware of "sham arrangements" if they decide to compare home loans.

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