RBA 'happy' with big bank rate hikes

THE RBA is happy with the major banks putting up their lending rates beyond official moves in the cash rate because it helps in the fight against inflation, economists say.

THE Reserve Bank of Australia is happy with the major banks putting up their lending rates beyond official moves in the cash rate because it helps in the fight against inflation, economists say.

The central bank governor Glenn Stevens said today it was unrealistic to expect the banks to move their lending rates only in line with the official cash rate given "the recent environment".

"The relationship between the cash rate (or, more correctly, the expected future cash rate) and rates on high quality private paper at a three-to-six month term is much looser at present than it has tended to be over recent years," Mr Stevens told a Sydney conference today.

"This means that the cost to banks of raising funds in the market has moved independently of the overnight rate.

"The presumption that their lending rates would and should move only in line with the cash rate, which had arisen in an earlier period when all these rates were much more closely related, has not been a realistic one in the recent environment," he said.

Lehman Brothers chief economist Stephen Roberts said Mr Stevens's speech indicated the RBA was pleased the banks were putting up their lending rates beyond official interest rate moves.

"They're certainly not unhappy with banks raising rates," he said.

"That keeps monetary conditions tight to the extent the banks have been raising rates.

"If the banks hadn't done that, they (the RBA) would have had to raise the cash rate further.

"The whole aim of monetary policy is to contain domestic spending."

The National Australia Bank raised its variable home loan rate by another nine basis points this week, on top of a 29 basis point rise earlier this month, taking them to 9.36 per cent.

The bank's 38 basis point increase in lending rates was well above the RBA's 25 basis point March rate rise, which took the cash rate to a 12-year high of 7.25 per cent.

The Commonwealth Bank of Australia, ANZ and St George all raised their variable lending rates by 35 basis points after this month's RBA meeting.

The upward movement in lending rates beyond the official cash rate increases was acknowledged by the RBA when it raised the cash rate earlier this month.