Banks may still increase rates

The Australian Financial Review has reported that wholesale funding costs could force Australia’s major banks to move above and beyond any future rate increases by the RBA.

According to The Australian Financial Review, CBA’s chief financial officer David Craig said he could see no end to rising funding costs over the medium term, which would put undue pressure on banks. Even though the banks are under political pressure not to raise lending rates independent of the RBA, especially in an election year, this may not be feasible if wholesale funding costs continue to increase.

In the past two months, new funding costs have risen, on average, 0.2 to 0.8 percentage points – at the same time the RBA has kept rates on hold.