Major bank CEO confirms mortgage rates will rise out-of-cycle

Speaking at a Reuters event in Sydney on Wednesday, ANZ chief executive Shayne Elliott said that while the Australian economy looks strong compared to overseas markets, things are tougher than they have been in previous years.

“There are emerging signs across the economy, whether it’s in the mortgage belt or in small business or big business, there are emerging signs of stress. They are nothing to be alarmed about but we are not used to them either,” Mr Elliott said.

Asked whether he could see a time when ANZ will raise home loan rates separately from the Reserve Bank’s movements, Mr Elliott said “yes”.

“It is absolutely reasonable to expect that because, as we talked about when we went in front of the parliamentary inquiry, while the RBA cash rate is an important ingredient in the cost of funds it is not the only ingredient,” he said.

“So it really depends on the interplay between the RBA cash rate and all the other things that effect our cost of funds: what we pay depositors, what we pay in international credit markets.”

Mr Elliott said he was confident that the major banks “did a pretty good job” of explaining those differences when they appeared before the parliamentary inquiry.

“That has also been reinforced by some of the comments from the Reserve Bank of Australia,” he said.

Last week, the standing committee on economics tabled its first report on the big four banks. The report highlighted the out-of-cycle rate hikes of the big four banks in October last year, which the majors attributed to an APRA requirement to hold additional capital.

“However, the magnitude of the interest rate increases in October 2015 (between 15 and 20 basis points for each of the major banks) indicates that the cost of higher capital requirements was borne largely by mortgage holders as opposed to shareholders,” the committee said.

“The major banks’ pricing power is also observable in the fact that they closely follow one another’s price changes, rather than attempting to increase their market share.”

The committee observed that since 2000, at least one of the major banks has increased their SVR out-of-cycle nine times.

“On five of these occasions, each of the other major banks has followed in the same month,” the report said.

[Related: Major bank looking at tracker mortgages]