September 16, 2009

THE Reserve Bank believes private banks are coming under funding pressure that may force them to raise mortgage rates, and is holding off lifting the official rate until it is certain the world economic recovery is more firmly based.The minutes of the Reserve Bank's last board meeting, released yesterday, disclose that directors discussed the rising funding costs for the banking sector and the possibility they may adjust variable mortgage rates.

Because of concern about the security of offshore wholesale funding, the banks have been competing aggressively for domestic retail and business deposits seen as a more stable source of funds. However, this is pushing up their interest costs.Market speculation the RBA will start lifting the official interest rate from its low point of 3 per cent has also resulted in the interbank bill rate rising.Interbank bills are the main way banks transact with each other on the money market.