Banks may be forced to lift rates

Banks may be forced to raise interest rates even if the Reserve Bank does not warned Treasurer Wayne Swan.

Even though Mr. Swan was delighted with the better than expected economic growth in the June quarter, he stated that the global financial pressures were still having an impact. It could force the banks to lift rates before the Reserve Bank.

He went on further to say that there may well be a time when events in international markets increase the cost of global funding and increase to the point, where rates may be pushed up by the banks but they would have to have an extremely good reason for doing so.

Government Bank Deposit Guarantee will stay for 3 more years

Mr. Swan further stated that interest rates would have to rise as economic conditions improved, and that the bank deposit guarantee was part of the reason why the Australian economy was able to grow despite uproar around the world.

The Federal Government has said that it will leave the bank deposit guarantee in place for three years and will look at term funding guarantee for banks when global financial conditions stabilise.

These guarantees were put in place in October last year, when the global crisis was at its peak shortly after the collapse of US investment bank Lehman Brothers, and when the banks were struggling to raise funds on the global markets.

The guarantee will be up for discussion at this weekend's G20 meeting of finance ministers in London.