Reserve Bank steady but interest rates likely to rise

Banks have been quietly raising rates for investor loans in recent times, as well as a range of fixed term rates, and are now eyeing whether to put up variable rates across all home loans.

The main reason for the independent rate rises is the “Donald Trump” effect – with his plans to spend hundreds of billions of dollars on infrastructure pushing up yields on long term US Treasury bills. That will push up borrowing costs in capital markets, and banks will have to pay more to source their funding after a long period of low rates. Overseas interest rate movements have a significant effect locally – and rates may go up as lenders see an easy way to offset the onslaught of higher funding costs on their profit margins.

Banks are also under pressure from the domestic regulator (APRA) to hold more capital as a buffer against any shock.

The question is whether the big four banks will raise rates for residential owner-occupied mortgages – after all, they exist in a politically charged atmosphere where their every move is being scrutinised by Canberra and consumer groups.

For now, the Reserve Bank left the cash rate on hold at 1.5 per cent last week.