RBA backs lenders? rate hikes

“... wholesale funding costs have been rising by more than the official cash rate; and that has been passed on to end borrowers,” he said. “But this outcome is preferable to the alternative of lending drying up.”

The RBA’s support has been welcomed by an industry faced with mounting pressure over rates and fees from political and consumer groups.

Government rhetoric surrounding lenders’ fees has increased since the major banks started passing on higher funding costs to borrowers in January.

Treasurer Wayne Swan has frequently expressed his displeasure over major banks moving beyond RBA increases, and recently commissioned an ASIC report investigating lenders’ switching fees.

However increased government pressure could force lenders into credit rationing.

Alan Langford, chief economist with HBOS, told Mortgage Business that a “credit strike” – if it were to occur – would represent a significant escalation of the credit crunch.

“It would increase the risk of a more widespread slowing in the broader economy, which is to nobody’s benefit – least of all the government of the day,” he said.

Theses sentiments were echoed by MFAA CEO Phil Naylor, who said that the government could do more to provide borrowers with a better understanding of the current funding climate.

“It is both the responsibility of the government and the lending industry to make sure consumers understand how monetary policy works,” Mr Naylor said.

Published: 07-04-08