Banks and government disagree over rates

On the election trail Prime Minister John Howard and Treasurer Peter Costello continue to argue that there is no reason for Australian banks to increase their interest rates outside of any move in the official cash rate but some of our leading bankers disagree. NAB's chairman, Michael Chaney, has said that that the Treasurer's insistence that Australian banks were immune to higher credit costs on global markets as they could rely on local deposits was not entirely true. “All banks have a very significant proportion of their funding in the wholesale market. If wholesale funding costs have risen permanently, then banks will have to raise their lending rates as well,” he said. ANZ's chief executive, Michael Smith, said that while they were absorbing the higher cost of funding for now, it was not a situation that could go on forever.

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