Australia's second largest bank Westpac Banking Corp Ltd (ASX:WBC) has estimated interest rates can go up by 5 percent in the third quarter of this year.

In an interview over Australia Broadcasting Corp radio program led by Leigh Sales, Westpac's chief executive said from the Reserve Bank's earlier announcements, cash rates would most likely stay within the same levels until the end of the second quarter.

Nevertheless, consumers and bankers alike need to brace for another cash rate adjustment by September of no less than 5 percent.

"Well, I think we can see them on hold for a while. That's certainly our economist's perspective. In fact, he would argue that there's only likely to be one interest rate increase and that would be probably in the September quarter. So, go up to five per cent, but probably in the September quarter," Ms Kelly said.

She noted in the interview that there was a miscommunication of sorts at the time that the bank got the flak for raising rates more than what the Reserve Bank imposed.

" I don't think we handled the communication nearly well enough. And then of course it got a little bit overwhelmed with the media attention. So, I personally should've been out there a whole lot more seeking to explain this, because it actually is absolutely explainable. And I didn't do nearly a good enough job personally of getting out there to actually explain the factors, to explain that we'd stood up to be counted during the crisis, that we'd be prepared to lend the funds that that had meant. We were raising a bit much more expensive levels and of course extending the term of the profile," she noted.

She said that after that rate adjustment, Westpac need not raise rates as the others did in December. She added that they hope to make it up to customers with excellent service and in 2013, the lower wholesale funding costs would definitely be passed on to loyal bank customers.

Westpac has posted approximately $1.55 billion cash earnings, on an unaudited basis for the three months to 31 December 2010.

Ms Kelly, said the group's first quarter performance was a solid start to the year with cash earnings up 5 per cent over the last two quarters of 2010, which averaged $1.47 billion.

The higher 1Q11 result was due to improved operating income, slightly lower expenses and a continuing improvement in impairment charges to $280 million.

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