Australian Property News

Bank interest rates not determined by cash rate

Posted on Monday, October 04 2010 at 11:18 AM

The official cash rate is only one consideration for mortgage rate setting, according to the Australian Bankers’ Association (ABA).

As the Reserve Bank meets this week to decide on the cash rate movement, investors should remember that it won’t determine bank interest rates, said ABA chief executive Steven Munchenberg.

“A key factor that determines the interest rates banks need to charge is the real cost of money,” he said.

“Thirty cents in every dollar lent by Australia’s major banks has to be raised from overseas investors. The cost of that money has remained high and volatile and is not controlled by the Reserve Bank.

“Also, there continues to be strong competition for deposits, which is good news for savers. Savings term deposit rates are around six per cent and higher. At times deposit rates have been nearly as high as mortgage rates, but this also adds to the costs of lending.”