March, 25, 2010

It is not just Gail Kelly of Westpac who is afraid of putting up bank interest rates for fear of a backlash from the government. The other banks are in the same boat and would dearly love to bolster their returns by increasing interest rates.They understand that most consumers are now making their interest commitments reasonably comfortably, so the financial downside of any borrowers at the margin being placed into distress would be outweighed by the additional revenue from even a small lift in rates.

And Kelly knows what she is talking about. She has already been on the receiving end of a stinging attack from the government for lifting rates beyond the increase declared by the Reserve Bank.Ralph Norris over at the Commonwealth Bank also lost kilter with the Reserve Bank on rate rises once and still bears the scars.Governments appear to relish the semi-regular thrashing they give to banks. Wayne Swan and Lindsay Tanner were both quick off the mark to reprimand Westpac yesterday.

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