ANZ Bank Hikes Variable Home, Small Business Loan Rates by 0.06%

As expected, ANZ Bank made a Friday, the 13^th interest rate announcement that would probably horrify most borrowers. The bank hiked its variable home loan and small business loan interest rates by 0.06 per cent.

ANZ explained its decision, anticipated already by Australians, to the higher cost of wholesale funding. Its move is expected to be followed by Westpac, the National Bank of Australia and Commonwealth Bank of Australia even if the Reserve Bank of Australia (RBA) had left the overnight cash rate at 4.25 per cent for the past three months.

It is also the third consecutive month that ANZ hiked its interest rate independent of the RBA policy by announcing every second Friday of the month its decision. Although ANZ did not increase its variable rates in March, the lender hiked rates on fixed-interest mortgage products last month.

With the adjustment, ANZ's standard variable mortgage rate goes up to 7.42 per cent which means a borrower with a $280,000 home loan would have to shell out $3.25 more each week. The bank's small business borrower with a loan of $130,000 would need to pay an extra $1.50 a week. ANZ's standard variable rate is now the second highest, next to Westpac.

The new rates, which take effect on April 20, will likely be protested by Australians since ANZ reported first quarter profit of $1.48 billion.

"We accept our response to the new funding environment is difficult for some of our customers - even though deposit customers have benefited from better rates," ANZ Chief Executive Philip Chronican said in a statement.

"Given this and the volatility we have seen in wholesale funding markets, we wanted to ensure these costs were sustained before we acted to pass them on.... We also wanted to pace increases in a way that was manageable for our customers and ensured we were competitively positioned," he added.

Damian Smith, the chief executive officer of RateCity, said that given ANZ's unofficial leadership among the big 4 in setting rates, the three other banks are expected to follow suit and increase their rates in the next few days.

The ANZ decision would likely be a double whammy for Australian borrowers because a large RBA rate cut would likely be ruled out by the central bank because of the better-than-expected unemployment report released on Thursday.