Banks react after Reserve Bank increasesofficial cash rate to 4.5 per cent

Tuesday May 4, 2010

Banks across Australia are already reacting to the news of yet another increase to the official cash rate, taking it to 4.5 per cent which is an increase of 25 basis points. This is the third consecutive rate rise by the central bank and will now see homeowners paying around $50 extra per month on a standard a $300,000, 25-year home loan, according to research company Canstar Cannex.

Australian banks quickly followed suit with three of the Big Four announcing their own rate rises. The announcements were as follows:

• Commonwealth Bank announced minutes after the Reserve Bank that it too will raise its home loan variable interest rates by 25 basis points taking it to 7.36 per cent.

• National Australia Bank later announced that it plans to match the Reserve Bank in an increase of 25 basis points across its variable mortgages and some deposit accounts with its new standard variable mortgage rate being 7.24 per cent

In a statement from the Reserve Bank governor Glenn Stevens, the governor expressed the RBA's belief that global financial markets were functioning far better than twelve months ago, taking the sovereign risk concerns in Europe into consideration.

"With the risk of serious economic contraction in Australia having passed some time ago, the Board has been adjusting the cash rate towards levels that would be consistent with interest rates to borrowers being close to the average experience over the past decade or more.

"The Board expects that, as a result of today's decision, rates for most borrowers will be around average levels. This represents a significant adjustment from the very expansionary settings reached a year ago." Mr Stevens said in his statement.

Mr Stevens went on to state that while the danger of serious economic contraction in Australia has passed, the RBA wishes to remain consistent with interest rates from a borrower's perspective.

"The Board expects that, as a result of today's decision, rates for most borrowers will be around average levels. This represents a significant adjustment from the very expansionary settings reached a year ago."

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