NAB: first to pass on latest rate rise

9th November 2007
By Petter Ingemarsson

NAB has become the first big Australian bank to raise interest rates following the latest rate rise.

National Australia Bank has become the first major Australian bank to raise mortgage rates after the Reserve Bank of Australia's latest cash target rate increase, paving the way for others to follow suit. Indeed further lender rate rises are inevitable given the current interest rate climate, which will place even greater strain on Australian mortgage holders.

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National Australia Bank (NAB) is the first major Australian bank to pass on the latest rate rise, which saw the Reserve Bank of Australia (RBA) raise the cash target rate by 25 basis points to 6.75%. The latest RBA rate rise was anticipated by the market as strong retail figures and low unemployment put inflationary pressure on the economy.

NAB announced that mortgage rates would rise in line with the RBA rate rise. At the same time, the rate that the bank offers to depositors will rise by 35 basis points for some products, in order to encourage savings. Major banks such as NAB fund most of their lending through deposits, but are still partly dependent on overseas financial markets to fund their operations. The global credit crunch has seen the rates demanded in these markets increase, which in turn, has increased funding costs for lenders across the board, especially for non-bank lenders that have no access to a deposit base.

Several non-bank lenders have already raised their interest rates, but NAB is the first major bank to do so. The other major banks, including the Commonwealth Bank of Australia, Australia and New Zealand Banking Group, and Westpac, have all signaled that they will sooner or later pass on increased funding costs to consumers.

Indeed, more lenders increasing their interest rates will be inevitable given the current interest rate environment. Moreover, recent wage figures show that Australian wages are still growing at an alarming pace. Average annualized wage increases (AAWI) rose to 4.3% for all sectors, with public sector AAWIs rising to 4.9%. While workers will be pleased with these wage increases, further rate rises are bad news for consumers as they will further stress already financially stretched mortgage holders.
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