They had no choice: Big banks’ move may delay RBA rate rise

This is the rate rise home loan borrowers were always going to get and would have got months ago but for the banking royal commission, writes Terry McCrann.

This is the rate rise home loan borrowers were always going to get and would have got months ago but for the banking royal commission.

I’ve been warning since late last year that home loan rates were headed higher — even as the Reserve Bank was going to leave its official rate unchanged — but that the banks would hold off to avoid pouring petrol on the commission flames.

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After last week’s absolute trashing of the banks by Commissioner Kenneth Hayne — he said there was clear evidence of criminality in their past behaviour — Westpac has effectively decided that things couldn’t get any worse and so has finally pushed the rate-rise button.

The other three big banks will now assuredly follow. Borrowers with interest-only loans face a double hit.

Their repayments were starting to go up as they switched to paying principal andinterest — and now they get the added rate hit.

Why are rates going up despite the Reserve Bank leaving its rate unchanged, all the way back to late 2016?

Source: Herald Sun

Because banks, and especially the four big banks, borrow about 40 per cent of their money in the global capital markets and the rates they pay there — they have to pay there — are mostly driven by rising US rates and not the Reserve Bank’s rate. As Westpac stated yesterday, these rates were up around 25 points and it is lifting its basic home loan rate by 14 points.

To indirectly make my point, Westpac said they’d been up since February-March. Indeed, the smaller banks — which haven’t received anywhere near as much heat in the royal commission hearings — moved much more promptly as their funding costs rose. Suncorp lifted its rates in March and the Bendigo followed last month.

Now, the RBA meets next Tuesday and will leave its rate unchanged yet again. And it has zero plans to raise it later this year.

Those decisions are totally separate from the Westpac move. But the fact that the big banks have finally moved will be another element in delaying any RBA official increase.

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