Banks Quick To Pass On Rate Rises

Sydney Morning Herald

Friday April 7, 2000

By MATT WADE

Home lenders took up to 66 days to pass on lower interest rates when the Reserve Bank adjusted monetary policy three years ago, but two banks have already announced higher rates after Wednesday's official rate rise.

And the dollar's continued weakness yesterday raised the prospect of another rate rise next month.

St George Bank said its standard variable home loan rate would rise a quarter of a percentage point today, to 7.55 per cent, after a similar move by ANZ, announced on Wednesday, that will apply to new customers from April 20.

Other banks and home lenders are set to announce mortgage interest rate increases within days.

But a document supplied by the Financial Services Consumer Policy Centre, an advocacy group, showed that banks took five time longer to pass on falling rates, between July 1996 and December 1998, than it has taken them to raise rates after the recent official rate increases.

In July 1996, major banks took an average of 50 days to change home loan rates after the Reserve Bank reduced the official rate by half a per cent.

In May 1997, when the Reserve cut rates another 0.5 per cent, banks took an average of 44 days to pass on savings to consumers.

In contrast, when the Reserve Bank put up rates for the first time in almost five years last November, banks took an average of 16 days to lift rates. In February, they took an average of just 10 days.

This time it has taken St George Bank just two days to impose higher rates.

A spokeswoman for the Australian Consumer Association, Ms Gail Kennedy, said: ``The comparative speeds between rate increases and decreases by banks is clearly outrageous."

Despite the higher rates, all the major banks said they had not seen a significant rise in customers opting for the security of fixed rates.

A spokesman for the Commonwealth Bank said about 10 per cent of new customers were choosing fixed rates, little changed since late last year.

Meanwhile, the dollar failed to respond to the Reserve Bank's rate rise, which aimed to shore up the currency. It remained trapped below US61c yesterday.

A currency strategist at investment bank Salomon Smith Barney, Mr Stephen Halmarick, said he expected the Reserve to raise rates by another half a per cent next month.

Many foreign exchange dealers said the dollar could soon dip below US60c.

The release of figures showing employment grew by 8,000 jobs in March gave the currency a fleeting boost yesterday. But it closed at US60.52 not far from its value before the Reserve Bank announced the latest rate rise.

The currency has resisted a number of the Reserve's attempts to revive it.

Last month the Reserve Bank governor, Mr Ian Macfarlane, attempted in an interview with the London Financial Times to talk up the currency. He said the Australian economy would remain robust and a falling dollar was not expected in such a climate.

Westpac's chief spot currency dealer, Mr Peter McGrath, said the dollar's recent poor performance had frustrated foreign investors and offshore investors were unwilling to buy it.

WHAT GOES UP QUICKLY . . . DOESN'T COME DOWN AS FAST
NUMBER OF DAYS IT TAKES BANKS TO CHANGE HOME LOAN RATES AFTER RBA CHANGES
                                          Rises:  NOV 99        FEB  00
Falls:       MAY 97        JUL 97       DEC 98
Westpac                                         20                   8
                     56                10             43
ANZ                                                15                   9
                        59                 17            20
CBA                                                30                 26
                       38                 24            19
NAB                                                  5                   5
                         66                 31              5
Aussie Home Loans                       12                   5
               2                 25            48
SOURCE:  FINANCIAL SERVICES CONSUMER POLICY CENTRE

© 2000 Sydney Morning Herald

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