Bankers said today's minutes from the Reserve Bank Board's Monetary Policy meeting confirm that the cost of banks' funding has increased beyond the official cash rate.

This is consistent with the industry's statements on why home loan interest rates have moved by more than the Reserve Bank's cash rate, for the first time in almost a year.

Steven Münchenberg, Chief Executive of the Australian Bankers' Association (ABA) said: "Banks have been absorbing these higher average funding costs for nearly a year, but there comes a point when these costs do have to be passed on."

"The RBA minutes recognise that funding costs have been slowly increasing. This gradual increase has had a cumulative effect over the past year that is significant. That's why some banks and other lenders have announced increases on standard variable home loan rates by more than the 25 basis points cash rate increase."

In addition, the minutes note that net interest margins for most banks are decreasing, as stated in banks' half yearly accounts.

Home borrowers not necessarily paying more

The minutes also state that the Reserve Bank's Board anticipated banks might increase interest rates on loans by more than any movement in the cash rate. Board members would therefore have taken this into account in deciding how to move the cash rate.

Mr Münchenberg said: "Home borrowers are not necessarily paying more in the medium-term for their home loan as a result of the banks' raising standard variable rates by more than the cash rate."

"This is because the Reserve Bank's Board takes into account the actual interest rates charged in the marketplace when deciding where interest rates should be and adjusts the cash rate accordingly. Today's minutes confirm this."

Quote from the Reserve Bank Board's Monetary Policy meeting minutes:

"Members were briefed on developments in funding costs. Most banks had reported a small reduction in net interest margins in their most recent half-yearly accounts, though some had experienced an increase. Deposit competition appeared to have levelled off in recent months. In debt markets, spreads on short-term bank bills had narrowed to be not far above pre-crisis levels. Spreads on longer-term bank debt had stabilised at levels that were significantly higher than before the crisis. This was slowly adding to the banks' cost of funds as banks rolled over debt issued earlier at lower spreads. Members noted that there was a possibility that banks would increase interest rates on loans by more than any move in the cash rate."