Reserve Bank of CBA hikes

The Reserve Bank of the CBA has joined the fray, hiking 0.1%:

The Commonwealth Bank today announced it will increase interest rates for its variable rate home loan accounts by 0.10 per cent per annum and for its six month Term Deposit account by 0.20 per cent.  The change in home loan interest rates reflect a sustained increase in both wholesale and deposit funding costs.

The increase in Variable Rate home loans of 0.10 per cent per annum takes the Standard Variable Home Loan interest rate to 7.41 per cent per annum.  The changes to both deposit and lending accounts will be effective from Monday 20 February 2012.

As reported in the February Reserve Bank of Australia Statement on Monetary Policy, “Bank funding costs have increased relative to the cash rate over the past six months.  In particular, there have been increases in the spreads of term deposits due to competition for deposit funding, an increase in the compensation required by investors globally for bank credit risk and an increase in the cost of foreign exchange hedging”.

This position is likely to be exacerbated given the increased uncertainty emanating from Europe.

Ross McEwan, Group Executive Retail Banking Services said, “In making this decision, we have been cognisant of our total funding costs, of which the Official Cash Rate is only one factor.  The Commonwealth Bank believes Australian banks should continue to price sensibly, taking into account factors both on and offshore, rather than experience similar problems to those that many banks overseas have experienced”.

“We also believe that we need to balance the needs of all of our customers by providing competitive pricing across all products.  Whilst we understand that any increase in interest rates is not favourable to borrowers, our millions of deposit customers are favoured and since the commencement of the GFC we have seen significant competition in retail deposits pricing.  There is always a requirement to consider all customer groups, whilst at the same time also balancing the needs of shareholders, including 800,000 Australians who own shares directly and millions more who hold our shares through their superannuation funds and rely on our returns.

“We have provided a strong sustainable and diverse business for Australians for 100 years and we will continue to support our customers, people, shareholders and the community tomorrow and into the future,” he added.


  1. Interesting how the CBA put term deposit rates up by more. How does this play into the cost of funding argument?

    • well I guess it would be that local funding is cheaper than offshore funding so there is more room to move with local deposits. Plus given how low CBA depost rates are they probably have very little market share compared to the likes of NAB (via Ubank) with circa 6% rates and thus need to compete more.

      Then again I could be wrong

    • This is a slightly different issue, but it’s worth noting that the only bank to increase small business lending rates was the ANZ – Westpac, Bendigo and CBA all lifted their mortgage rates but left business rates unchanged.

      My read is that the public and political pressure around mortgage rates has forced the banks to accept narrower and narrower margins, and in effect use higher rates on other products (such as business loans) to cross subsidise mortgage lending. Perhaps this is the banks taking the first steps in unwinding this disparity.

      It’s worth noting that the spread between mortgage lending and business lending has increased from around 20 basis points pre-GFC to around 120 basis points today. This is despite the fact that both products are residentially secured.

      While the housing sector is important to the economy, businesses in other sectors provide the bulk of employment, and forcing these businesses to pay such a high premium on their lending is no doubt having a detrimental impact on economic growth.

        • And it’s just been announced that NAB has increased their mortgage rate by 9 basis points. I couldn’t find their media release (it looks like there’s only a tweet at this stage), but it appear to imply that their business rates will remain unchanged.

          With the Big 4 all having now moved, the futility of the Government’s bank switching strategy has been clearly demonstrated.

  2. Totally predictable. They are all faced with the same foreign hikes.

    Why we think we’re different I don’t know, but the FED has official rates around 0%, and here is an example of US mortgage rates:

    Today’s Mortgage Interest Rates

    Loan Payment Examples

    Rates as of [02/10/2012]
    Product Rate Discount Origination APR Mo. Pmt
    Conforming Fixed – 30 Year 4.000% 1.625% 0.000% 4.200% 4.77
    4.250% 1.000% 0.000% 4.399% 4.92
    4.500% 0.000% 0.000% 4.564% 5.07
    Conforming Fixed – 20 Year 3.500% 1.875% 0.000% 3.800% 5.80
    4.000% 1.000% 0.000% 4.203% 6.06
    4.250% 0.000% 0.000% 4.337% 6.19
    Conforming Fixed – 15 Year 3.250% 1.625% 0.000% 3.596% 7.03
    3.500% 1.000% 0.000% 3.756% 7.15
    3.750% 0.000% 0.000% 3.860% 7.27
    Conforming Fixed – 10 Year 2.750% 2.000% 0.000% 3.325% 9.54
    2.950% 1.000% 0.000% 3.315% 9.63
    3.250% 0.000% 0.000% 3.406% 9.77
    FHA – 30 Year Fixed 4.000% 1.000% 0.000% 4.577% 4.85
    4.250% 0.000% 0.000% 4.750% 4.99
    FHA – 15 Year Fixed 3.250% 1.000% 0.000% 3.946% 7.13
    3.500% 0.000% 0.000% 4.054% 7.26
    VA – 30 Year Fixed 4.250% 0.000% 0.000% 4.591% 5.08
    VA – 15 Year Fixed 4.250% 0.000% 0.000% 4.848% 7.77
    3YR ARM – APR may increase after consummation 2.875% 1.000% 0.000% 3.787% 4.15
    3.000% 0.000% 0.000% 3.735% 4.22
    5YR ARM – APR may increase after consummation 2.500% 1.000% 0.000% 3.528% 3.95
    2.875% 0.000% 0.000% 3.580% 4.15
    Jumbo – 30 Year Fixed 4.250% 2.000% 0.000% 4.485% 4.92
    4.500% 1.000% 0.000% 4.651% 5.07
    Jumbo – 15 Year Fixed 3.250% 2.000% 0.000% 3.652% 7.03
    3.750% 1.000% 0.000% 4.008% 7.27

    We’re in the global economy so this is normal. Why MSM is shocked about banks raising rates out of step with the RBA I’m not sure.

    • Mining BoganMEMBER

      You have to think in terms of skirts.

      If you raise a skirt it will lift a few eyebrows and gain a bit of interest but otherwise not newsworthy.

      If you hike a skirt then you know someone is about to be well and truly f….