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Rates set to jump, regardless of RBA: experts

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Rates set to jump, regardless of RBA: experts

CHRIS ZAPPONE

February 8, 2010 - 11:29AM Comments 9

Banks will probably raise interest rates above and beyond any official increases announced by the Reserve Bank over the next few months as they move to shore up margins after the federal government ends its wholesale funding guarantee.

The Rudd government said yesterday it will scrap its $190 billion wholesale funding guarantee on March 31.

That could create a new reason for banks - many of which hiked rates by much bigger margins than the 25-basis-point rise announced by the central bank in December - to ask borrowers to pay more.

Announcing the end of the guarantee, Treasurer Wayne Swan warned banks against excessive rates rises.

"It's difficult to determine where the banks would be on a mortgage prices, but I wouldn't be surprised to see the banks lead with another move similar to what Westpac, ANZ and Commonwealth Bank did in December," said Macquarie banking analyst Tom Quarmby.

Because of the pressure from the customers and politicians, banks are reluctant to increase rates by small increments. If they are going to face the public's wrath, they need to make it worth their while, he said.

Westpac outraged customers in December by adding 45 basis points to the cost of the variable mortgage rate – 20 basis points above the RBA's increase. ANZ Bank and CBA raised mortgage rates by 35 and 37 basis points respectively. Only National Australia Bank did not increase them above the central bank's level.

The market is forecasting only a one-in-five chance of a 25-basis-point rise in March. A 25-basis-point rate rise adds about $45 to the average cost of a $300,000, 25-year loan.

Southern Cross Securities banking analyst TS Lim said out-of-step rate rises were "inevitable".

Mr Lim said the government is anxious to remove the guarantee - halting it one-and-a-half years ahead of schedule. "They want to make sure the banks don't get too many benefits from the tax payer because it's…an election year."

czappone@fairfax.com.au

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Swan is a liar.

He's happy for the banks to move on this as a free market.

If he wasn't, he'd go back to government regulation.

They WANT the banks to act like this because it does THEIR job of managing the economic train wreck they're creating AND provide them a political way out to save face when it all goes to hell.

Government changes laws on regulation, lending and taxation.

Financial institutions provide the market as required and make a tidy profit from it.

Government points fingers at the banks and say BAD BANKS

Banks laugh and look forward to the next quarter's profit results.

Sadly, no one connects the dots in the media and casts such an uncomfortable spotlight on these enablers to show the public just who they really should be blaming.

But some of us are not so stupid...<_<

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