Australia's four biggest banks have given their strongest indication that they anticipate interest rates will rise over the long term by increasing their fixed interest mortgage rates.
The nation's biggest bank, the Commonwealth Bank, on Tuesday raised its one- and three-year fixed rates by 11 basis points to 7.35 per cent.
National Australia Bank yesterday lifted its introductory one-year fixed rate for the second time since December - up 9 basis points to 6.74 per cent. However, it left its three-year fixed rate unchanged at 7.18 per cent - the cheapest rate of the majors.
Westpac and ANZ increased their three-year fixed rates by 16 basis points to 7.35 per cent in December.
Cannex financial analyst Harry Senlitonga said that in "general the trend is moving up a bit" for three-year fixed rates. He said this was an indication the banks believed rates were on the way up.
He said three-year fixed rates had increased between 5 to 10 basis points.
Mr Senlitonga said that another factor that could be contributing to the higher fixed rates was demand.
"(For) a product which has a strong demand, they will price it higher," he said.
Major banks said last year that most of their customers were switching from variable to fixed rates.
A CBA spokesman said "fixed rates are not tied to any Reserve Bank movement, they fluctuate regularly in line with movements in the cash market".
He also said CBA was "competitive with all of the other banks" and that all of its fixed rate offerings were "competitive".
Since December, the money market three-year fixed rate has increased from 6.54 per cent to 6.68 per cent.
Going against the trend was St George Bank, which this week dropped its three-year fixed rate from 7.19 per cent to 6.95 per cent.
Credit ratings agency Fitch Ratings said it expected growth in the Australian banking sector to moderate in 2007 due to competition and slower growth in housing finance.
In a report released yesterday, Fitch said it also believed asset quality would come under pressure.
"For a number of years, asset quality at the Australian banks has been near pristine; this is clearly unsustainable in the medium term," said Fitch associate director Tim Roche.
Of bigger concern was the explosion of leveraged buyout activity by private equity firms in the Australian corporate sector and higher gearing levels.
"If this were to coincide with weaker economic conditions it may lead to an increase in unemployment which is likely to have a negative impact on bank asset quality," Mr Roche said.
Source: Newscorp
