market will bleed again on monday, page-14

Isnt this obvious why aussie markets will be affected...spending slows...debt repyaments increase...a lot of companies businesses and consumers have to pay more and more...wake up and smell the coffee

March 16, 2008 01:50am
Article from: The Sunday Telegraph

http://www.news.com.au/business/story/0,23...935-462,00.html

AUSTRALIAN homeowners and investors are facing more interest rate misery after the near collapse of American banking giant Bear Stearns yesterday.

The US investment bank had to be given an emergency loan by rival JP Morgan, backed by the Federal Reserve, after it effectively ran out of cash because of a massive fall in the value of its investments.

It had invested heavily in instruments linked to poor-quality mortgages in America, where defaults are soaring and house prices have fallen 12 per cent from their peak.

As a result, the value of its investments plummeted.

The news is likely to mean more rate hikes by Australian banks - independently to any RBA announcements - as they try to preserve their profits in the face of spiralling funding costs.

Rory Robertson, interest rate strategist at Macquarie Bank, said: "Banks raise about half of the money they need from the wholesale markets, so they are directly exposed to events in the US. It's certainly possible we will see major banks raise rates again."

The banks have already topped up the RBA's quarter-point rise by an average of 0.15 per cent in January and by another 0.10 per cent this month.

"Lots of credit analysts are saying the cost of funds is rising by much more than that, so the banks may feel the need to raise rates again," Mr Robertson said.

"It's hard because households have already been hit by the biggest financial shock in 15 years - with rates up by 1.25 per cent in just seven months. That's a lot to swallow."

Only last week the banks passed on more than the quarter-point rise announced by the RBA this month.

ANZ, Commonwealth Bank and St George all passed on 0.35 to mortgage customers. Westpac hiked rates by 0.3 per cent and NAB by 0.29 per cent.


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