(7 October 2010 – Australia) The Commonwealth Bank of Australia is forecast to raise mortgage interest rates “out-of-cycle” by 30 basis points in the next six months.Morgan Stanley has reportedly told its clients that the Commonwealth Bank would need to raise interest rates by around 50 basis points over the next year to maintain 2011 full-year earnings and offset higher funding costs.
However analyst Richard Wiles believes this would be “difficult” to achieve, instead forecasting two 15 basis point “out of rate” cycle increases.
Our forecasts assume just 30bp of ‘out-of-cycle’ rate rises, possibly with the first in this quarter and the second in the March quarter of 2011, Mr Wiles told the Australian.
In our view, regulatory risk will increase if major banks try to protect existing margins and return on equity in retail banking by making several ‘out-of-cycle’ home-loan rate rises during full-year 2011, Mr Wiles added.
CBA, which is worth about A$80 billion and has the biggest share of the residential mortgage market, this week opened the door to lifting its standard variable mortgage rates independent of the RBA.