Banks may raise rates regardless of RBA

Variable mortgage rates offered by the banks might increase by around 10 to 15 basis points regardless of what the Reserve Bank (RBA) does between now and Christmas.

At a historical low of 3 per cent, the cash rate is at emergecy levels and will have to rise in time anyway. With some good economic data lately leading to improved business and consumer optimisim, sentiment on a rate rise has shifted to sooner rather thna later. However, the last few days has seen a fall in retails spending and home loan approvals that will be giving the Bank reason to reconsider any upward movement in rates before Christmas. Regardless of any pause by the RBA, variable home loan rates might increase anyway.

An important contributer to the cost of bank funding is the 'Bank Bill Swap Rate' - the cost of short term funds lent between banks. Over the last few weeks this rate has crept steadily higher. In the event the RBA does increase rates before Christmas the banks would almost certainly tack on an extra few points when the pass the increase to customers. If the RBA decides to hold, the major banks may just go it alone.

This is ironic because the knowledge of the potential for an adjustment by the banks will most likely add to the RBA's decision to keep rates on hold a little longer.