RBA keeps official interest rate on hold

HOMEOWNERS could face further home loan pain, despite the Reserve Bank today keeping the official interest rate on hold at 7.25 per cent.

RBA keeps official interest rate on hold

HOMEOWNERS could face further home loan pain, despite the Reserve Bank today keeping the official interest rate on hold at 7.25 per cent.

The central bank last lifted the cash rate in March by 25 basis points and has lifted rates 12 times since May 2002 in a bid to keep inflation within its 2-3 per cent target range.

"Weighing up the available domestic and international information, the board's judgement is that the current stance of monetary policy remains appropriate for the time being,'' RBA governor Glenn Stevens said in a statement.

"The board will continue to evaluate prospects for economic activity and inflation in the light of new information.

Banks might move regardless

The big banks have been squeezing homeowners more than the RBA in recent months, as they pass on the higher cost of borrowing to their customers.

The banks have usually taken their cue from the central bank when setting their interest rates, but in January they broke with tradition and raised lending rates independently by between 10 and 20 basis points. Since then they have moved rates as and when they see fit.

AMP Capital Markets chief economist Dr Shane Oliver said yesterday the retail banks have upped their lending rates on average 42 basis points more than what would have been the case had they just followed the RBA.

“That in turn means that the Reserve Bank hasn't had to raise the cash rate by as much,'' Dr Oliver said.

“The banks have done it for them and it's taken some of the pressure off the Reserve Bank.''

RBA governor Glenn Stevens said last month it was no longer realistic to expect banks to mirror the RBA’s movements.

"The presumption that their (banks) 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.

What the banks are charging

National Australia Bank's standard variable home loan rate is sitting at 9.46 per cent after the bank pushed through a sneaky 10 basis point rise late on Anzac Day.

NAB’s move came a day after ANZ had hiked its rate by 10 basis points to 9.47 per cent, which is in line with what St George and Westpac are charging. The Commonwealth Bank’s standard variable rate is 9.44 per cent.

And home loan rates are likely to keep rising, according to Lehman Brothers Australia chief economist Stephen Roberts who told AAP yesterday he expected the retail banks to keep lifting their lending rates.

“If you're somebody with a variable rate mortgage, to all extents and purposes it feels as if conditions have been tightened again, because the banks have just sent you a letter saying 'by the way, we've just put up rates another 10 basis points','' Mr Roberts said.

“My guess is that they may send more letters like that over the course of the next few months even if the cash rate stays unchanged.''

What the banks are making

Today, St George (sgb.ASX:Quote,News) reported a 10.1 per cent fall in net profit for the six months to March 31 to $514 million. For the year-ended September, the bank posted a record profit of $1.16 billion, up 13 per cent on the previous year.

Westpac's (wbc.ASX:Quote,News) profit for the six months to March 31 jumped 34.2 per cent to $2.202 billion.

ANZ’s (anz.ASX:Quote,News) half year net profit fell 7 per cent to $1.963 billion, taking into account bad loan provisions of almost $1 billion.

In the half year ended December 31, Commonwealth Bank of Australia (cba.ASX:Quote,News) reported a 4 per cent rise in interim profit to a record $2.39 billion. The bank will release its full year results in August.

NAB (nab.ASX:Quote,News) is due to report its half year results this Friday. In the year to September 2007, it reported a record net profit of $4.6 billion.