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Rates Left Unchanged

At its meeting last week, Reserve Bank of Australia had decided to leave the cash rate unchanged at 7.25 per cent.

Inflation in Australia has been high over the past year in an environment of limited spare capacity and earlier strong growth in demand. In these circumstances, the Board has been seeking to restrain demand in order to reduce inflation over time.

As a result of earlier decisions by the Board, additional rises in market interest rates and tougher credit standards for some borrowers, there has been a substantial tightening in financial conditions since the middle of 2007. Conditions in international financial markets, though gradually improving, also remain difficult.

Lack of Competition Inquiry

An inquiry is to be conducted by the House of Representatives Economics Committee into the level of competition in the Australian Home Loan Market.

Figures from the Bureau of Statistics show the big four banks financed almost 90% of all home loans by value in February 2008 — the highest rate in 13 years.

The terms of reference for the inquiry, set by Federal Treasurer Wayne Swan, will identify barriers to competition in both retail banking and non-banking sectors, and recommend policies to improve competition and product choice for consumers.

"We need to open up competition in the retail banking and non-banking sectors, demystify the number of home mortgage products available and offer a wider choice to the consumer," said committee chairman Craig Thomson.

Mr Swan recently criticised the big banks for raising their lending rates independently of the Reserve Bank. The big banks blame higher borrowing costs due to recent financial turmoil. But the big four, because of their size and superior credit rating, have been able to borrow from the markets at lower rates than the non-bank lenders.

In a recent Senate inquiry John Symond, chief executive of Aussie Home Loans — one of Australia's largest non-bank lenders — said the increasing dominance of the big four banks was dangerous for consumers and businesses, and could result in higher interest rates.


 

 

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