Swan Seeks Report As Banks Go It Alone On Rates

The Age

Tuesday January 8, 2008

Vanessa Burrow, Markets Reporter

ANZ has become the second big bank to raise variable interest rates without an official interest rate rise - and federal Treasurer Wayne Swan wants to know why.

ANZ increased its standard variable rate by 0.2 of a percentage point, or 20 basis points, to 8.77%, adding about $29 a month to an average 30-year, $200,000 mortgage.

The bank last week increased its fixed rates by 25 basis points to 8.54%, soon after National Australia Bank said it would raise its standard variable rates by 12 basis points to 8.69%.

About 80% of Australian home loans go up and down with the standard variable rate, while the rest are fixed.

Mr Swan said excessive increases would not be viewed favourably by the Government or by families who could "vote with their feet" in a competitive banking market.

"Customers will want to know why the ANZ's hike was almost twice the NAB rise announced last week, and that's a fair question," he said.

"Although this is clearly a direct consequence of the US subprime crisis, I do point out that Australian banks are very profitable, and would caution them against putting additional and excessive pressure on families."

Together, ANZ and NAB make up about 30% of the home-lending market and an additional 47% is accounted for by Westpac, Commonwealth Bank and St George.

With speculation that these too will raise interest rates, Mr Swan said he had requested further briefings today from the Reserve Bank, the Australian Prudential Regulation Authority and the Treasury. Interest rates charged on mortgages usually rise or fall when the RBA changes official interest rates, which were raised to 6.75% in November.

But banks are moving independently for the first time in almost a decade because of excessive defaults in the high-risk US mortgage market and the subsequent tightening of credit worldwide.

ANZ's group managing director, personal, Brian Hartzer, said wholesale interest rates - or the rate at which banks lend to one another on a short-term basis - had been up to 60 basis points higher than normal. They remained about three points higher than usual, and the bank had to pass on higher costs to customers, he said.

Spokesmen for Westpac, Commonwealth Bank and St George said their rates remained under review.

Since the interest rate increases were announced, the market betting on an official interest rate rise next month has declined from about 50% to 33%, according to an index produced by investment bank Credit Suisse.