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Banks will toe RBA line: AMP

By webmaster
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The Reserve Bank's decision to leave rates on hold for the remainder of 2010 is unlikely to be undermined by out of cycle bank rate hikes.

At its monthly board meeting yesterday, the RBA signalled that it is comfortable keeping interest rates on hold well into 2011, after weak consumer spending had the economy virtually stalling in the September quarter.

That said, the banks are continuing to fight against the higher costs of funds, which could force them to once again move independently of the RBA.

Last month, all four of the majors lifted their respective standard variable rates above the RBA’s 25 basis point hike.

AMP’s chief economist Shane Oliver told First Property Buyer that after last month’s independent rate hikes, the banks were no longer burdened by the same level of funding pressure.

“My feeling is that the banks have largely recouped the increase in funding costs that they were complaining about, and therefore there is no extra pressure on them to move independently of the Reserve Bank,” Mr Oliver said.

“I think the banks will sit tight for an extended period and my best guess is that they will move in line with the Reserve Bank going forward.”

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