Westpac forecasts higher interests rates: Borrowers warned to brace for higher repayments
Monthly repayments could soon cost borrowers a lot more cash if Westpac’s predictions for rate rises do come to fruit...
ANZ today announced it will increase interest rates for variable rate mortgages and small business lending by 0.06%pa.
This is the first time the bank has moved to increase its rates independently of the RBA's cash rate since it announced its split with the central bank’s pricing in December last year.
According to a statement from the bank the decision follows ANZ's monthly interest rate review which considered:
- Increased competition among banks for consumer and business deposits that has provided higher relative returns to ANZ's 2.9 million deposit customers;
- Higher costs paid by ANZ for $8 billion in long-term wholesale funding raised since October 2011 as a result of the economic and financial crisis in Europe which has made money more expensive for all banks to borrow.
Effective 17 February 2012, ANZ's new standard variable mortgage rate will be 7.36%pa (7.46%pa comparison rate). New small business rates are effective from 17 February.
ANZ will also cut its three year fixed rate mortgage by 0.15% to 5.99%pa as part of its Breakfree banking package.
ANZ CEO Australia Philip Chronican said, "This month we faced a serious dilemma in our review, balancing the rising cost of bank funding including deposit customers' interests in receiving highly competitive rates, and the expectation of borrowers that we keep lending rates as low as possible.
"In December and January we absorbed the additional funding costs in the hope that funding pressures would ease and that no change in lending rates would be necessary.
"However, margins in retail and business banking have now been squeezed for a number of months and we’ve taken the difficult decision to pass on part of the higher costs to customers while we also get on with taking action to reshape the bank for tougher times.
"Our new monthly interest rate review process recognises that the Reserve Bank's cash rate alone is not an accurate reflection of bank funding costs, particularly since the global financial crisis which has left all banks with the task of raising funds in volatile global markets and through stronger competition for deposits.
"This change comes with a duty to explain to our customers what drives our decisions and provide greater transparency about our funding costs.
"We also want to assure customers that we are committed to providing competitive products and we hope there will be an opportunity to lower rates in the coming months as greater confidence returns to global funding markets," Mr Chronican said.
"There has been much debate on banks in recent days. While we recognise our decision may leave some people frustrated and even angry, we believe Australia needs safe, well-run commercial banks that aren’t a burden on taxpayers and that can continue to lend. The alternative of weak, constrained banks that we see in the United States and in Europe is a recipe for stagnation and recession in Australia," Mr Chronican added.
Interest is the amount of money charged by a lender or financial institution for a loan, which is calculated as the percentage of the principal amount paid over the loan term.