Banks to absorb rate hikes

27/01/2010

The big banks will absorb some of the Reserve Bank’s rate rises that are expected in the second half of the year, say respected economists.

"Banks will be raising rates less than the RBA by year's end," said AMP Capital Investors' Shane Oliver.

Chris Richardson from Access economics says the banks will cut their lending margins by about 0.3 per cent as the RBA raises rates by up to 1 per cent.

In recent years, the margin between variable home loan rates and the RBA rate has risen from 1.8 per cent to as much as 3 per cent.

“That's going to go into reverse," Mr Richardson said.

"We are probably looking at 30 basis points (0.3 percentage points) in 2010 and another 30 or 40 in 2011."

Richardson also forecast that lenders would undercut by a further 0.4 percentage points in 2011, saving borrowers about $140 in total.

Westpac said as funding costs eased it would share the benefits with customers.

Source: Courier Mail

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