Banks set to pounce with extra rate hit likely

ANZ has all but admitted that banks will slug home loan borrowers with an extra rate hike if the Reserve Bank lifts its official interest rate next week.

In the event the RBA lifts the official cash rate by 25 basis points, or 0.25 percentage points, ANZ will add another 20 basis points to take the total increase to 45 basis points, commentary from the bank indicates.

The admission, which was almost certainly unintended, came in a special briefing note to clients from ANZ chief economist Warren Hogan.

In the note, Mr Hogan writes that the RBA will aim to lift interest rates in the economy by "between 40bp (basis points) and 70bp".

He goes on to write: "We expect this will require two 25bp increases in the (RBA's official) cash rate".

The note reveals that ANZ expects the central bank to lift its official rate by 50 basis points this year, but that interest rates charged to borrowers will actually climb as much as 70 points -- almost three quarters of a percentage point.

While Mr Hogan does not specifically nominate mortgages, analysts say rate hikes would be particularly potent in the home lending market, which dominates Australia's credit system.

Housing loans now account for almost 60 per cent of total lending in Australia, compared with less than 45 per cent a decade ago.

However, an ANZ spokesman last night said Mr Hogan is "the bank's chief economist and he was talking as an economic commentator".

"He was referring to interest rates across the economy including those that the RBA does not have direct control over," the spokesman said.

A string of analysts have predicted that the banks will use the "cover" of any increase in the official cash rate to hike mortgage rates further still as they move to address ballooning funding costs.

Brian Johnson, an analyst at stockbroking house CLSA, has said it is "inevitable that banks will go (and increase mortgage rates) by 45" basis points if the official rate is lifted by 25 points, to 4.75 per cent.

In a report last week, Deutsche Bank analyst James Freeman said banks would look to increase mortgage rates by 20 basis points above any increase in the official cash rate, albeit over the next six months, while other analysts have forecast extra increases of at least 10 basis points.

Until last week, many industry experts had predicted that the banks would increase mortgage rates out of step with the RBA to address increasingly tight profit margins.

But with the Reserve Bank now widely expected to lift the official cash rate next week rather than wait, as had been expected, until at least November, the banks are likely to hold fire until they can use the official rise as foundation for a bigger hike.

For the majority of prudent Australians who carry no debt and have savings in the bank the interest rate increases are a good thing.
For the minority of Australians who carry huge debts and who were silly enough to hock themselves to the eyeballs buying over valued real estate, to bad..
In my opinion..the higher the interest rates..the better