Variable Rates Will Stay Down: Banks
The Sun Herald
Saturday September 5, 1992
THERE is no prospect of an imminent rise in home mortgage rates, the big three banks - the Commonwealth, National and State - promised yesterday.
Spokesmen for all three banks publicly dismissed fears that the recent rise in the State and National fixed rate mortgages heralded an across-the-board rise in variable home loan rates. (Variable rate home loans apply to the majority of borrowers.)
* Haydn Park, the National Bank's director of public affairs, said the bank's rise in business and fixed mortgage rate loans announced on Friday was merely an "adjustment back to market levels" where the National had previously run lower than the market.
"The future of rates will be determined by what happens offshore, particularly in Germany. But the Japanese and Americans are tending to drop rates in attempts to try and float their economies," Mr Park said.
In fact, the US central bank, the Federal Reserve, yesterday cut the rate which banks charge each other for overnight loans from 3.25 per cent to 3pc in a move regarded as a bid to boost the economy.
The Bank of Japan is also rumoured to be poised to cut its key discount rate on Friday.
"We are just in a period where people are only going to adjust their rates at the margin a bit," Mr Park said.
"Logically, if the Japanese and Americans keep trimming rates in a relative sense, then ours should trim down too."
* Paul McCarthy, general manager of the Commonwealth Bank, said: "We have no imminent plans to increase our home-loan interest rates, or other loan interest rates.
"Essentially, the Government has ruled out a tightening of monetary policy, other than in extreme circumstances, so in the absence of a tightening of monetary policy it is more likely a rise in the variable rate product can be avoided."
Mr McCarthy explained that on top of the recent currency turmoil there had also been an expectation in financial markets that interest rates would be reduced further after the Budget.
"That further easing had been factored into money market rates," he said. "Now given that that expectation has all but disappeared, those professional rates have moved up to a normal margin above the cost of cash.
"So while the cost of cash - which reflects the stance of monetary policy -hasn't changed, what's changed are expectations about whether there will or will not be another easing of monetary policy."
Mr McCarthy said he believed average borrowers had not caught up with the range of home mortgage products on the market.
"Just because one or two products within the range have to be re-priced because of movements in the market, it's an exaggeration to refer to that as a lift in home mortgage rates.
"The vast majority of borrowers are on the variable rate, or more recently a capped rate product, and those at the moment are not under imminent risk of a rise," he said.
* State Bank chief economist, Hans Kunnen, said he did not expect the key variable mortgage rate to be adjusted unless the Government tightened monetary policy - lifted official interest rates.
"It is really tied into the currency and that seems to have stabilised," he said. "It would be a disaster at this stage of the cycle for interest rates to go up."
* However Geoff Martin, an economist and executive director of Mercantile Mutual Investment, said be believed that, with interest rates unlikely to fall any further, potential home buyers - and those seeking to refinance an existing home loan - should borrow now rather than later.
© 1992 The Sun Herald