Commonwealth rate move 'to encourage other hikes'

The Commonwealth Bank's (CBA) decision yesterday (November 2nd) to raise home loan interest rates by nearly twice as much as the Reserve Bank (RBA) could prompt other major lenders to do the same, it has been suggested.

CLSA's Brian Johnson, a leading bank analyst, told the Daily Telegraph that by pushing up rates by 45 basis points, CBA may be trying to say "we're going and everyone should follow".

In addition, the newspaper reported from "a source at another bank" who predicted that CBA's move would lead its peers to raise their rates by at least 0.35 percentage points instead of the RBA's increase of 0.25 per cent.

The forecasts came as it was suggested that CBA's decision was motivated, at least in part, by the need to boost earnings for the sake of shareholders.

CBA executive general manager of retail products Michael Cant explained the move with reference to sharply rising funding costs but also said the bank was "balancing the interests of customers and shareholders".

Such interest rate moves could prompt more borrowers to compare home loans and consider switching provider. Treasurer Wayne Swan yesterday reflected public anger by describing CBA's actions as "a cynical cash grab".

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