Westpac, ANZ lift interest rates

Westpac has become the second of the four big banks to raise interest rates in defiance of the Reserve Bank of Australia.

Westpac announced today it would raise its standard variable home loan rate by 0.10 percentage points to 7.46 per cent, effective from February 20.

The move follows the Reserve Bank of Australia’s (RBA) decision on Tuesday decided to leave the cash rate on hold at 4.25 per cent.

ANZ Banking Group has raised its variable interest rates for retail mortgages and small business loans by 0.06 percentage points.

ANZ said it had lifted its standard variable interest rates on home loans to 7.36 per cent from 7.30 per cent.

However it cut its fixed lending rates.

The bank’s three-year fixed rate home loan rate will fall by 0.15 per cent to 5.99 per cent.

Westpac group executive, retail and business banking, Jason Yetton said the rate hike reflected the increased cost to the bank of raising money.

“While we believe that reducing rates in November and December last year was the right thing to do for our customers and the economy, higher deposit costs and higher wholesale funging costs since then make today’s move necessary,” Mr Yetton said.

He said that over the past four months intense competition for term deposits had increased their costs to Westpac by around 0.3 percentage points and that wholesale funding costs had also increased significantly.

ANZ Australia chief executive Philip Chronican said the decision to lift rates was made because of intense pressure on retail and business banking margins.

"In December and January we absorbed the additional funding costs in the hope that funding pressures would ease and that no change in lending rates would be necessary,” he said in a statement.

"However, margins in retail and business banking have now been squeezed for a number of months and we’ve taken the difficult decision to pass on part of the higher costs to customers while we also get on with taking action to reshape the bank for tougher times."

ANZ no longer announces interest rate movements in lock-step with the RBA.

The move was designed to change the public’s perception that ANZ’s loan rates, and cost of funds, were tied to the RBA’s cash rate.

National Australia Bank has the lowest standard variable rate (SVR) of the big four banks at 7.22 per cent.

Westpac offers 7.36 per cent, and Commonwealth’s SVR is 7.31 per cent.

The rate rise will add $6.50 per fortnight to the average home loan of $280,000, ANZ said.

Small and medium sized businesses will pay an extra $3 per fortnight on an average loan of $130,000, it said.

ANZ said 85 per cent of its customers are already ahead on their repayments, meaning they will not need to pay more as a result of the rate rise.

Mr Chronican also launched a defence of the bank and the wider industry. “While we recognise our decision may leave some people frustrated and even angry, we believe Australia needs safe, well-run commercial banks that aren’t a burden on taxpayers and that can continue to lend,” he said.

"The alternative of weak, constrained banks that we see in the United States and in Europe is a recipe for stagnation and recession in Australia."