ANZ hikes interest rates, breaks with OCR

10 Feb 2012, 8:38 pm   -   Source: AAP
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ANZ lifted its standard variable interest rates on home loans to 7.36 per cent from 7.30 per cent. (AAP)

ANZ lifted its standard variable interest rates on home loans to 7.36 per cent from 7.30 per cent. (AAP)

ANZ Bank raised interest rates on home and business loans by 6bps, becoming the first bank to break the link between banks' rates and the OCR.

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Borrowers are bracing for more interest rate hikes after ANZ Banking Group and Westpac raised interest rates in defiance of the Reserve Bank of Australia (RBA).

ANZ was the first of the big four to move, followed by an even bigger rise from Westpac.

ANZ and Westpac's separate announcements on Friday came three days after the central bank unexpectedly left the cash rate on hold, sparking forecasts from economists that the RBA will cut its cash rate in coming months.

Treasurer Wayne Swan immediately attacked ANZ's rate hike, saying the bank's customers would be "ropeable".

Westpac issued its rate increase announcement after Mr Swan had made his comments.

ANZ was determined to make good on its promise to break the public's perception of a link between banks' interest rates and the cash rate set by the RBA that has dominated interest rate settings for more than a decade.

ANZ, Australia's third biggest bank, dipped its toe in politically sensitive waters by hiking rates on variable rate mortgages and small business loans by six basis points.

The move will leave ANZ's standard variable rate (SVR) at 7.36 per cent from February 17.

Westpac raised its SVR by 10 basis points or 0.1 percentage points, to 7.46 per cent, making it among the highest SVR of the big four banks, effective from February 20.

Westpac group executive Jason Yetton said the rate hike reflected the increased cost to the bank of raising money.

"While we believe that reducing rates in November and December last year was the right thing to do for our customers and the economy, higher deposit costs and higher wholesale funding costs since then make today's move necessary," Mr Yetton said in a statement.

He said that 90 per cent of Westpac customers already paid less than its SVR, although ANZ on Friday also cut the interest rate on its three-year fixed rate mortgage offered to its Breakfree customers by 15 basis points.

That decision came less than four days after ANZ clawed back margins by cutting the discount offered to new borrowers taking out a Breakfree variable rate home or investment loan of at least $500,000 from 1.00 per cent to 0.9 per cent.

The head of ANZ's Australian operations Philip Chronican attributed the rate rise to intense competition for deposits that has helped banks reduce their reliance on credit markets for funding over the past two years.

"This is just a commercial decision," Mr Chronican told the Macquarie Radio Network.

"The shareholders have been bearing this for many months now and at this point we felt the shareholders had borne enough and we needed to pass some of this on to our customers.

"We hope there will be an opportunity to lower rates in the coming months."

Banks now source about 20 per cent of their funding from offshore wholesale credit markets, down from 40 per cent in 2008.

But Europe's debt crisis has spurred competition in those markets and pushed prices higher since October, resulting in a "serious dilemma" for ANZ this month, Mr Chronican said.

Analysts warned ANZ's rivals will likely move toward independent rate rises, hiking borrowing costs across Australia.

Commonwealth Bank (CBA) and Bendigo and Adelaide Bank on Friday said their rates were under review.

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