THE country's biggest lenders have rushed to match the 25-basis-point increase in official rates, and have warned that the high cost of wholesale funding could trigger a further round of interest rate rises beyond any future moves by the central bank.

The Age - 4th Nov 2009 - By ERIC JOHNSTON

THE country's biggest lenders have rushed to match the 25-basis-point increase in official rates, and have warned that the high cost of wholesale funding could trigger a further round of interest rate rises beyond any future moves by the central bank.

Each of the big four banks yesterday detailed interest rate increases across a range of variable mortgage and some deposit accounts, with most to take effect from next Monday.

The latest move on rates came as Treasurer Wayne Swan urged restraint from banks when it came to homeowners. "I don't believe that any bank would have any justification for increasing their mortgage rates over and above the increase in the cash rate delivered by the Reserve Bank," Mr Swan said yesterday.

Given significant Government support for the sector over the past year in the form of deposit and funding guarantees, banks have been careful to keep politicians onside by keeping rate rises on mortgages in check.

But rates in less politically sensitive areas,m such as business loans and credit cards, have been rising as banks have sought to protect profit margins. Banks say they still face substantial funding headaches, particularly in offshore markets still ravaged by the global financial crisis. As well, the cost of short-term funds has crept back up in recent months on rising expectations that official Australian interest rates were about to ratchet up.

In a sign that funding costs are again starting to bite, each of the nation's big four banks telegraphed plans to raise rates on mortgages within hours of the Reserve Bank's move.

ANZ was the first to move, outlining its changes to mortgages and business loans within 15 minutes of the central bank. Worryingly for customers, ANZ warned it could have to pass on more rate hikes if costs remained inflated.

"Funding costs remain high and despite improvements in credit markets the average cost of wholesale funding is increasing, which is continuing to place considerable pressure on mortgage margins," said ANZ's acting chief executive, Australia, Graham Hodges.

"If sustained over time, there will be commercial pressure to pass the additional costs on," he said.

From Monday, the new rate on ANZ's standard variable rate home loan will be 6.31 per cent. ANZ also said interest rates across some deposit products would rise by up to 35 basis points.

A lift in interest rates of a quarter of a percentage point adds $45 to the monthly cost of servicing a $300,000 loan.

Commonwealth Bank followed ANZ's lead, lifting its flagship home rate to 6.24 per cent, from 5.99 per cent, as of Monday. Deposit rates will increase by the same amount on its high-interest savings account.

"Funding pressures and market interest rates continue to be significant issues for financial institutions and today's increase reflects the costs being experienced," said CBA's group executive of retail banking, Ross McEwan.

From Friday, NAB's flagship standard variable rate mortgage will be 25 basis points higher at 6.24 per cent.

Westpac said it also planned to increase its standard variable home loan and deposit interest rates by 25 basis points to 6.31 per cent. It said it was not planning to increase variable business lending rates.