Drawn out wait for rate relief

Banks looking for opportunities to tinker with pricing and stretch margins might be frustrated at the consensus emerging over when the Reserve Bank of Australia will next lift the cash rate, which looks like being no earlier than November 2010 and maybe not then.

The RBA, as expected, yesterday left the cash rate target unchanged at 4.5 per cent, the rate set back in May. The cash rate increased in six steps of 25 basis points to the present level, beginning in October 2009.

Talk has circulated - at least among some sell-side banking analysts - that banks will seek to lift interest rates on home loans once Australia's general election is out of the way later this month.

Some lenders probably want to but are constrained by the easing rate of credit growth. The growth rate is below eight per cent on an annualised basis in home loans, RBA financial aggregates published on Friday show. Personal credit growth is negative (a function, largely, of reduced demand for margin loans). Business credit is only just positive on a month-to-month basis.

Big banks also have better opportunities to improve margins on business loans, and especially big business loans, where there are some signs of a lift in refinancing activity.

The best opportunity to manage margins is thus on the liability side, though monitors of interest rate pricing such as GBST and RateCity report very little movement in at-call rates over recent weeks.

For its part the RBA in its statement explaining the decision repeated the language used in recent months, which is that "interest rates to borrowers [are] around their average levels of the past decade."

Any widespread moves by lenders over the remainder of 2010 to lift margins may yet make the next move up in the cash rates less likely, since commercial banks will once again be doing the central bank's work.