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How far will banks raise mortgage rates?

The decision by Australia’s major banks to raise variable mortgage rates in response to higher capital costs has naturally led to questions over how the Reserve Bank is likely to respond. While the RBA may decide to hold interest rates steady next week, higher mortgage rates clearly add to downside risks to the official cash rate over the next year, especially as the required adjustment in lending rates to higher capital charges may not be over. Indeed, while major banks have so far raised their variable mortgage rates by an average of 0.18bp to meet higher capital requirements, our research suggests that this still represents only 40% of the required adjustment in capital ratios to make them “unquestionably strong” by global standards - as required by APRA. To read more visit: (VIEW LINK)

David Bassanese
Chief Economist

Author, columnist, investment strategist and macro-economist. Previous roles at Federal Treasury, OECD, Macquarie Bank and AFR. I develop economic insights and portfolio construction strategies for BetaShares' retail and adviser clients.

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