Angst for Borrowers – Interest Rates are rising
Homeowners are nervously awaiting the major bank’s lending rate decisions after Westpac jacked up its key home loan rate by almost double last Tuesday’s official rate move. Business has backed the Federal Government’s attack on Wespac, blaming a lack of competition in the mortgage market.
The Opposition pointed the finger at the Government’s “reckless” spending for the steady rise in the official rates.
Wespac lifted its standard variable rate by 45 basis points last Tuesday because of increased funding pressures, drawing a stinging attack from the Treasurer.
The Reserve Bank of Australia (RBA) increased its cash rate by 25 basis points to 3.75 per cent at the board meeting.
The decision continued the RBA’s normalisation of monetary policy because the emergency levels set during the economic downturn were now no longer required.
It was the third month in a row that the central bank had lifted the rate, a pace unprecedented since it began announcing its rate decision in 1990.
The other major banks have yet to announce their rate decisions. This rate rise will no doubt hurt all Australians with a mortgage or credit card and all small business owners with an overdraft or small business loan.
While Westpac had limited the increase in its business rates to 25 basis points, many small business owners used their home loan for business purposes.
Westpac’s decision was a further unwelcome development given small businesses did not get all the benefit or the massive reductions when the RBA was actively cutting rates.
The onus is on the bank when then they do this to ensure that those increases do reflect pressures in terms of their underlying funding costs. If the banks in their own right are making upward adjustments, then it reduces pressure on the Reserve Bank in terms of any decision they might make in increasing rates.
Money market pricing pointed to a less than 50 per cent chance of a further move in February when the central bank holds its next board meeting. The major banks were likely to lift rates at a greater pace than the RBA because of funding pressures.
There are a number of challenges facing the market and foremost is the concentration of power with the big four banks.
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