Westpac chief executive Gail Kelly tips September for next interest rate rise

WESTPAC chief Gail Kelly foreshadows another rate rise this year at the start of Spring, and mortgage rates could rise even sooner.

Gail Kelly

WESTPAC chief Gail Kelly has foreshadowed another rate rise this year as the Reserve Bank again moves to prevent Australia's resources-driven economy from boiling over.

The official interest rate was likely to remain on hold for several months as businesses and households continued to show an aversion to debt, before climbing in about September, Ms Kelly said yesterday.

"Consumers and businesses are cautious so credit growth actually isn't as you would have expected it to be in what is otherwise a healthy overall economy," she said.

"I would expect them (interest rates) to continue to be on hold for the next several months.

"Possibly, September time, I would see the potential for another interest rate change and I think that would be 25 basis points up."

Ms Kelly signalled that mortgage rates could rise sooner, saying that while Westpac was comfortable with current rates, funding costs continued to grow and were unlikely to plateau until the end of next year.

"We, all the time, are considering our position on interest rates," she said.

The growth in funding costs since the financial crisis would see banks cherish cash provided by savers and pay them more, and borrowers, accordingly, "are going to pay a lot more".

Speaking at a lunch in Melbourne, Ms Kelly also warned that the sluggish demand for credit was among factors that would weigh on the performance of banks.

Overall credit growth was running at 3 per cent annually in Australia, she said, while business credit -- expected to pick up in the year -- was contracting.

"We won't go back to those double-digit days of credit growth that we saw (most of the past decade)," Ms Kelly said.

New balance-sheet rules to fortify the strength of banks around the globe would also affect their performance, she said. Returns on equity for Australian banks would not climb back above the 20 per cent threshold, Ms Kelly said.