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Deposit war may ease

Deposit war may ease

(25 March 2013 – Australia) A sharp drop in wholesale funding costs for lending rates has been down played by the Reserve Bank of Australia (RBA) which said competition for deposits remained the key influence on banks’ costs. The big banks are likely to welcome findings of RBA researchers, which said lending rates had tended to move in line with costs in the past year.

During 2012, the gap between the cash rate and mortgages continued to widen, sparking accusations the banks were gouging their customers.

The RBA said the main reason for this was the battle to attract deposits, the central bank also said over 2012, the cost of deposit funding had fallen by only 90 basis points, compared with the 125-basis-point fall in the cash rate.

It also said the cost of raising new wholesale debt had fallen to its lowest since 2009 - but banks were still replacing some cheaper debt that had been issued before the global financial crisis.

''Although the recent narrowing of spreads on long-term wholesale debt will eventually put downward pressure on funding costs, developments in deposit competition will have a larger impact on movements in funding costs,'' RBA staff members Benn Robertson and Anthony Rush wrote.
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