Bank's Supersize Rate Rise Blasted

The Age

Thursday February 7, 2008

By Tim Colebatch, Economics editor, Canberra

FINANCE Minister Lindsay Tanner has urged hundreds of thousands of mortgage borrowers to consider moving their loans from Australia's largest home lender, the Commonwealth Bank, after it announced an oversized rise of 0.3 of a percentage point in its interest rates.

As the Federal Government announced the first slice of razor-gang cuts designed to ease the pressure on inflation, the Commonwealth became the first bank to pass on the Reserve Bank's latest 0.25 of a percentage point interest rate rise - and more.

The Commonwealth, which has by far the largest home lending book of any bank, will lift its standard variable rate tomorrow from 8.67% to 8.97%. The extra 0.05 of a percentage point will add roughly $10 a month to the cost of servicing a typical $250,000 loan.

The Commonwealth's retail banking chief, Ross McEwan, blamed the additional rise on the bank's own increased borrowing costs on global markets. He said the bank had passed on only part of its increased costs last month, believing that market rates would fall.

"Regrettably this has not happened", he said.

"We are continuing to absorb a significant portion of the additional costs being incurred."

Last month the Commonwealth became the cheapest home lender of the big four banks when it raised its interest rates by just 0.1 of a percentage point while its rivals raised them by between 0.12 and 0.2 of a point.

Yesterday's move brings it back to the pack.

The Federal Government responded angrily.

Treasurer Wayne Swan pledged to reveal soon his plans to make it easier for mortgage holders to switch banks if they were dissatisfied.

"I think people rightly will be furious with the Commonwealth Bank, because families will take it very hard," he said.

Mr Tanner said Commonwealth Bank customers "are entitled to be asking questions about their choice of bank . . . It will be up to customers to draw their own conclusions about that. It's up to the Government to ensure that they have the maximum ability to make choices about where their loans are held, and to move them if they seek to do so."

Mr Tanner announced the first slice of budget cuts, cancelling 46 projects or programs announced by the Howard government in the lead-up to last year's election, at a saving of $643 million over four years.

The savings, which include a $104 million downgrade of expected drought relief expenses following heavy rains in much of the country, will cut Federal Government spending next year by just 0.1%, and reverse less than 5% of the new spending announced between May and October.

But Mr Tanner also flagged a second wave of spending reviews after the budget, targeting tax concessions and more complex areas of potential expenditure savings.

He announced tighter rules to ensure proper evaluation of planned spending measures. Ministers would no longer be able to approve discretionary spending in their own electorates, and they would be required to "respect" departmental advice on spending.