Margin pressure overplayed by Westpac

Banks take turns in raising or lifting margins, as cartel interests dictate. Westpac took its turn as price leader yesterday in the home loan market, announcing an increase in its standard variable rate on home loans of 45 basis points. Westpac's new standard variable rate will be 6.76 per cent.

The RBA had earlier announced an increase in the cash rate target of 25 basis points to 3.75 per cent.

Westpac, in a media release, cited "continuing cost pressures we are experiencing in wholesale funding markets" as well as "the higher rates we are paying on customer deposits" to explain the rise in margins.

The bank, like others, is a price taker in wholesale markets, where margins on new money are a lot less than they were earlier in the year, but still well in excess of margins on maturing funds.

Pricing trends in domestic deposit markets may be more flexible, though as described in the preceding article, banks are electing to offer unusually high rates in both the retail and middle market.