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CBA indicates banks will raise rates

Banks are likely to raise rates outside of RBA movements, says CBA's top boss Ralph Norris.

Norris told delegates at a business lunch in Sydney yesterday that the cost of bank funding would have a bigger impact on escalating bank rates than factors that the RBA took into account when making its decisions.

"Movements in bank funding costs are impacted by more than just changes in the RBA cash rate,'' he said, reported the Sydney Morning Herald. ''Changes in the RBA cash rate are not driven by wider credit spreads in financial markets, they're not driven by the need for Australian banks to increase the proportion of long-term funding and they're not driven by increasing competition.''

According to the SMH, Norris responded affirmatively when asked if it is inevitable to see a rate rise above the official cash rate.

"I think there's no doubt that when we look at current funding costs, rates are going to increase," Norris said. "The additional cost of liquidity and the additional cost of capital is going to have upward pressure on interest rates going forward."

However, he didn't comment on CBA's upcoming actions.

By BN | 15 Oct 2010