Friday, October 1, 2010

Who really is sqeezing interest rate margins

Banks are threatening to raise interest rates by more than any official rise in the cash rate by the Reserve Bank of Australia. They further threaten that these additional rises might come about even if the RBA does not raise interest rates any time soon. They say this is necessary because funding costs are reducing their margins.

Question: If bank interest rate margins are really threatened by increased funding costs, why are banks offering generous discounts on home loans - in some cases up to 0.80 per cent?