Making headlines today, The Australian Financial Review has reported that Australia’s major banks will be forced to surrender $700 million in profits unless they raise their interest rates above those of the RBA.
According to the paper, analysis by Morgan Stanley show the combined profits of the big four would be $700 million lower in 2011 if funding costs continue to increase and are not offset by rate rises from the banks.
The RBA has already indicated that it may raise rates at the August board meeting if inflation continues to rise.
However, any move by the RBA will not be enough to offset the extra funding costs that Australia’s majors are currently facing.
Morgan Stanley analyst Richard Wiles estimates that banks will have to raise their rates by between 0.1of a percentage point to 0.15 of a percentage point above the RBA.