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Banks to ‘raise rates after federal election’

by James Mitchell5 minute read

One aggregator has warned that banks are likely to lift mortgage rates as a result of rising cost of funds and compliance issues, despite predictions of further easing of monetary policy.

1300HomeLoan managing director John Kolenda says it’s not surprising that the RBA kept its cash rate at the record low of 1.75 per cent yesterday, after the 25 basis points reduction in May.

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Mr Kolenda said the central bank could lower official rates again at its next meeting on 5 July, three days after the federal election.

However, the aggregation boss cautioned that further rate cuts by the RBA could be negated by banks lifting their home loan interest rates out of cycle due to cost of funding and compliance issues.

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“The banks have been waiting until the election is out of the way before making any moves independently of the RBA,” he said.

“They want to lift rates in response to rising funding costs and the additional costs they face for the extra compliance and regulatory increase on reserves they will have to have in place by the end of June.”

Mr Kolenda said the recent attention from both sides of politics and the federal opposition pledge to hold a royal commission into Australia’s banking system has also tied the banks’ hands on rates until after the election.

“While the RBA has room to cut its cash rate further due to the two-speed economy and subdued consumer confidence, any future reduction is likely to be negated,” he said.

“Banks will look to increase their rates at the next opportunity, most likely in the second half of the year once the election is out of the way.”

[Related: Rising mortgage rates increase risk of default: report]

Banks to ‘raise rates after federal election’
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James Mitchell

James Mitchell

AUTHOR

James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.

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