Reserve Bank losing its influence

The acknowledgement came in an RBA report, released yesterday, on the impact of the capital market turbulence on banks' funding costs and suggests that banks may continue to move their interest rates independently of the central bank.

"The recent financial turbulence means that while the cash rate remains a key influence on banks' funding costs, the costs of the various forms of banks' funding have not fallen as much as the cash rate due to an increase in term premia and credit and liquidity spreads," the report stated.

It found that while the official cash rate had fallen 425 basis points since last September, the interest rates on major banks' outstanding funding liability had declined by an average of 330 - a gap of nearly a full percentage point.

But the failure to pass on the full value of interest rate reductions has not been felt equally by all borrowers.

For variable housing loans, bank interest rates have fallen by 385 basis points, but variable interest rates on small business loans have fallen substantially less - by only 230 basis points.

Macquarie interest rate strategist Rory Robertson said the report indicated the RBA was bracing for more volatility in consumer interest rates.

"Perhaps the main point the RBA tried to emphasise today is that the 'new normal' from here may involve bank lending rates moving more regularly than the official cash rate, because several of the forces behind bank funding costs move independently of that main driver," Mr Robertson wrote in a note to clients.

The report sheds light on the question of where banks derive their funds. Domestic deposits, which have remained fairly resilient through the economic slowdown, constitute 53 per cent of funding.

The remainder is drawn from capital markets, of which marginally more than half comes from overseas.

The report also challenges claims from banks that far from depriving customers of the benefit of interest rate falls, they have, in fact, shielded them from the full effect of tightening finance markets.

The Commonwealth Bank last week said it would raise its variable mortgage rates, becoming the first of the country's four biggest lenders to do so since the central bank began a record round of cuts to borrowing costs in September.

The National Australia Bank and Westpac this week increased interest rates for fixed-term home loans.

Specialist mortgage provider Rams Home Loans says it will raise interest rates on some of its fixed home loans today but has no plans to change its variable rates.

Rams also says it expects to double its franchise distribution network over the next two years to cater for increased demand.

It currently has 44 franchise-owned home loan centres throughout Australia.

Rams said on Thursday its two-year fixed rate will rise by 15 basis points to 5.64 per cent per annum.

-- With AGENCIES