MNI ANALYSIS: Aussie Mortgage Hikes Won't Faze RBA

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of Australia will likely shrug off the

latest round of bank mortgage rate hikes, as they only offset past declines and

cheaper options available in a competitive market place could mitigate the

effect on households.

     Earlier Thursday, ANZ and Commonwealth Bank announced respective 16 bps and

15 bps hikes in variable rates on several home loan products, joining Westpac,

which raised by 14 bps last week. Several smaller banks have also raised

variable mortgage rates in recent weeks.

     Bigger mortgage bills tighten financial conditions for households,

complicating matters for an RBA juggling between resisting a further cut in the

cash rate but not wanting to see broader interest rates rise and hurt household

spending.

     --RBA EXASPERATED, NOT WORRIED

     But the latest mortgage increases only return rates to the levels of a year

ago, as noted by RBA Governor Philip Lowe, who recently urged households to take

advantage of a competitive mortgage market.

     "I encourage anyone with a mortgage to shop around: there are some very

good offerings out there," Lowe said in a speech Tuesday.

     --FIXED-RATE ATTRACTION

     One option for Australian households could be to switch from variable to

fixed-rate mortgages. Nearly 80% of Australian mortgages are on variable terms

as their rates have traditionally been attractive compared to fixed terms, which

are currently cheaper.

     Both ANZ and Commonwealth Bank pointed to fixed-rate options in media

releases announcing their rate hikes.

     Divergence in variable and fixed rates is largely being driven by the

spread between cash rate and the benchmark bank bill swap rate rising faster

than the cash rate forward strip.

     The RBA says the next move in the cash rate is up. If that guidance is to

be believed, now would be the best time for households to shift their mortgage

from variable to fixed.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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