property gloomy news

HSBC predicts more rate rises
By Nick Lenaghan May 02, 2008 05:09pm
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HSBC AUSTRALIA boss Stuart Davis expects the big banks to continue raising their home loan rates independently of the Reserve Bank of Australia to cover the cost of their own borrowings.
"There's no doubt,'' Mr Davis told a business lunch in Melbourne today.

"We saw a couple of banks move their standard variable rates last week.

"There's going to be a least another one, if not another two of those over the next few months.''

By contrast, the HSBC chief executive said it unlikely the Reserve Bank of Australia would raise the official cash rate again when it meets next week, despite high inflation.

"Part of the reason why I don't think they'll move is simply because the banks are doing their work for them,'' Mr Davis told the American Chamber of Commerce lunch in Melbourne.

Mr Davis later explained that credit spreads in offshore capital markets had "come in a little bit'' in the past two months but not significantly.

"As the banks either renew current funding or fulfil their funding programs for the 12 months, there's no doubt there's an increase in the cost of funds,'' he told reporters afterwards.

Rising rates for retail deposits locally showed they were in high demand, he said.

"Right across the board - both the capital markets and as well as the retail end - you've got an increase in the cost of funds.

"If there's an increase of the cost of funds, then there has to be an increase in the cost of lending.''

The number of increases in home loan rates over the next few months would depend on the amount each bank moved by each time.

"They need to balance off customer and community concerns against their own ones,'' Mr Davis said.

Banks were moving typically in 10-basis point increments, he said.

"In that respect the banks are trying to be as responsible as they can, rather than doing a huge jump in one hit which would be an enormous stress for households.''

Mr Davis said it would be interesting to see which of the big banks was the first to perceive the cost of funds was falling, although he shied away from predicting when that might happen.

"That's when the competition will be interesting. That's when competition for market shares will become intense.''