Commonwealth Bank considers interest rate hike

Commonwealth Bank may be considering an interest rate hike ahead of next months Reserve Bank board meeting.

Banking analysts are predicting that the country's largest home lender may increase standard variable rates by as much as 10 basis points due to funding costs continuing to rise.

If CBA were to increase their rates it would be totally controversial because they have not passed on the full benefit of recent official rate cuts by the Reserve Bank.

Members Equity currently has the lowest rate amongst the banks at 5.39 per cent. CBA has the lowest offer among the major banks at 5.64 per cent. That is 0.1 per cent cheaper than the next best rate of 5.74 per cent that is being marketed by NAB.

ANZ and Westpac are each marketing variable home loans at 5.81 per cent while Bendigo brings up the rear with an offer of 5.9 per cent.

Bryan Fitzgerald a spokesman for CBA has confirmed that the bank was reviewing the pricing on their standard variable loan but he was not prepared to comment on whether the rate would be increased this week. He further stated that their rates were always under review and that their long-term cost of funding their home loans was continuing to increase.

Further pressure is coming from the term deposit market which is also adding to their costs.

Ralph Norris CBA's chief executive stated in February that CBA would not necessarily follow the Reserve's official rate moves in setting its mortgage rates. CBA has held on to 0.82 per cent of the net official rate reduction by the RBA since January 2008.

Mr. Norris also pointed out that CBA's margins had been reduced since the beginning of the credit crisis below the level they regarded as acceptable that's why they indicated that they may not be able to pass on future rate cuts in full.

While the major banks have reduced short-term deposit rates this year, the pricing on two year and three year deposit products have risen from an average of 3.5 per cent in March to above 5 per cent in the past two weeks.

The improved term-deposit offers was triggered by Suncorp and Bendigo Bank which had not been able to make effective use of the Federal Government's funding guarantee because they had to pay higher fees than the majors under the scheme.

The funding pressures on the CBA groups have been magnified by the recent acquisition of the BankWest franchise which has emerged as a price leader in four and five year term deposits.

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Published on June 6-th, 2009 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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