Business borrowers wait for rate rise sting

BANKS moved swiftly to raise variable home loan rates in line with the Reserve Bank’s 0.25 per cent increase in the cash rate yesterday, but Westpac tried to upstage its rivals by promising not to boost the cost of small business credit.
While Commonwealth Bank’s business borrowers will have a nervous wait to see whether they will cop another increase, NAB and ANZ said they were lifting rates on business loans by 0.25 per cent from the start of next week, The Herald Sun reports.
The RBA increased the official rate for the second month in a row and signalled it would move “gradually” to further tighten monetary policy.

“With the risk of serious economic contraction in Australia now having passed, the board’s view is that it is prudent to lessen gradually the degree of monetary stimulus that was put in place when the outlook

appeared to be much weaker,” RBA governor Glenn Stevens said.

“The adjustments at the October and November meetings will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead.”

After the official rise the money market began “pricing out” the likelihood of a December rise, with the benchmark rate on 90-day bank bills tumbling 7 basis points to 3.88 per cent. The 90-day bill swap rate fell 8 basis points to close at a slight premium to the RBA’s new cash rate of 3.5 per cent.

Joris Hillmann, the head of fixed income at Macquarie Funds Management, said the fall in bill rates reflected the lesser chance of a December rate move by the RBA.

“The market had previously priced in for month-on-month increases, but the reaction today suggests that RBA may keep rates on hold in December,” he said.

Within minutes of yesterday’s RBA announcement, ANZ boosted its variable rate home mortgage by 0.25 per cent to 6.31 per cent.

It was followed by CBA, NAB and Westpac, which each also increased their standard variable home loan rate by 25 basis points. CBA and NAB remain joint price leaders in the home loan market, both offering variable mortgages at 6.24 per cent.

But Westpac sprung a minor surprise, saying it would hold its business rates. Westpac and its subsidiary St George are making a pitch for new small business borrowers in Victoria and South Australia, where NAB and ANZ have traditionally held dominant market positions.

Westpac’s pricing on its base rate for secured business lending will remain at 7.69 per cent, while NAB is set to reprice to 7.68 per cent.

Business lending price leader, CBA, is yet to decide whether it will move its secured lending rate up from 6.49 per cent.

“Our business rates are under review,” said CBA spokesman Brian Fitzgerald.
The RBA is the only central bank in the world to have begun tightening monetary policy this year, and the latest official hike comes ahead of important board meetings later this week at the US Federal Reserve, the Bank of England and the European Central Bank.

No changes are expected to official rates in the US and Europe, but some economists have tipped the Bank of England may further ease monetary policy by launching a pound stg. 50 billion

re-purchase of government-backed paper.

Money market traders are waiting keenly for the latest US employment data due on Friday after a warning from President Barak Obama on Monday that the US workforce may still be contracting.

The RBA’s Mr Stevens noted yesterday that economic growth in China was having a “significant impact on other economies in the region and on commodity markets”.

He said economic conditions in Australia had been stronger than expected and measures of confidence had recovered.

“There have been some early signs of an improvement in labour market conditions,” he said.

“The rate of unemployment is now likely to peak at a considerably lower level than earlier expected.”

The RBA’s decision not to tighten by more than 0.25 per cent contributed to a fall in the Australian dollar, which peaked at US91.22 in the minutes before the rate announcement. It was hovering near US89.70 last night.


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