Borrowers are bracing for more interest rate hikes after ANZ Banking Group became the first to raise interest rates in defiance of the Reserve Bank of Australia (RBA).
ANZ’s move on Friday came three days after the central bank unexpectedly left the cash rate on hold, sparking forecasts from economists that the RBA will cut its rate in coming months.
Treasurer Wayne Swan immediately attacked ANZ’s rate hike, saying the bank’s customers would be “ropable”.
But ANZ was determined to make good on its promise to break the public’s perception of a link between banks’ interest rates and the cash rate set by the RBA that has dominated interest rate settings for more than a decade.
Australia’s third biggest bank dipped its toe in politically sensitive waters by hiking rates on variable rate mortgages and small business loans by six basis points.
The move will leave ANZ’s standard variable rate (SVR) at 7.36 per cent from February 17, matching Westpac’s SVR and making them the highest SVRs among the big four.
However, ANZ cut the interest rate on its three-year fixed rate mortgage offered to its Breakfree customers by 15 basis points.
That decision came less than four days after ANZ clawed back margins by cutting the discount offered to new borrowers taking out a Breakfree variable rate home or investment loan of at least $500,000 from 1.00 per cent to 0.9 per cent.
The head of ANZ’s Australian operations Philip Chronican attributed the rate rise to intense competition for deposits that has helped banks reduce their reliance on credit markets for funding over the past two years.
“This is just a commercial decision,” Mr Chronican told the Macquarie Radio Network.
“The shareholders have been bearing this for many months now and at this point we felt the shareholders had borne enough and we needed to pass some of this on to our customers.
“We hope there will be an opportunity to lower rates in the coming months.”
Banks now source about 20 per cent of their funding from offshore wholesale credit markets, down from 40 per cent in 2008.
But Europe’s debt crisis has spurred competition in those markets and pushed prices higher since October, resulting in a “serious dilemma” for ANZ this month, Mr Chronican said.
Analysts warned ANZ’s rivals will likely move toward independent rate rises, hiking borrowing costs across Australia.
Commonwealth Bank (CBA) and Bendigo and Adelaide Bank on Friday said their rates were under review.
Comment was sought from Westpac and National Australia Bank.
Bank of Queensland on Thursday left its SVR unchanged.
At 2.44 per cent, ANZ had the highest group net interest margin (NIM) of the big four by September 30, 2011, down three basis points on a year earlier mostly due to higher funding costs and the cost of paying depositors.
However its NIM for the Australia division slipped two basis points to 2.57 per cent, with much of those costs being offset by loan repricing.
ANZ’s rate hike will increase earnings per share by 1.5 per cent, George Gabriel, analyst at Evans and Partners, said.
Across all banks the headwind for margins was currently between five and eight basis points, Deutsche Bank’s James Freeman said.
An increase of 10 basis points on home loans would lift their group NIM by around three per cent and allow them to meet earnings estimates, he said.
