Cost of funding issues are likely to force Australia’s major banks to make out of cycle rate hikes again, according to a major broker group.
Despite the possibility of the Reserve Bank of Australia (RBA
) making further cuts to the cash rate in response to the rising Australian dollar, 1300HomeLoan managing director John Kolenda said the central bank’s actions could be negated by the major banks raising their rates.
“With continued global economic uncertainty banks have recently seen their cost of funding increase and unless that eases they will have no choice but to pass those increases onto consumers,” Kolenda said.
“These have been confusing times for borrowers with banks lifting rates outside of the RBA
’s deliberations and this looks like being the new normal going forward.”
According to Kolenda, variable rates increased by up to 29 basis points last year while investor loans increased by up to 49 basis points.
“While the RBA
has plenty of room to cut its cash rate again, its actions are expected to be made redundant by the banks lifting their rates out of cycle.”
The banks are also under pressure to comply with a regulatory increase on reserves by the end of June this year, which Kolenda believes has been a contributor to the recent out of cycle increases.
“More may follow around this issue as banks start to see the additional financial costs flow through.
“This is the first time in history we have seen multiple triggers at play outside the RBA
’s control that is forcing rate movements and competing with their directions.
“The Australian Prudential Regulation Authority (APRA
) wants to make our banks the safest in the world by enforcing new regularity requirements that will increase the cost of providing mortgages.”