Finance is more expensive – and will soon be harder to get

Adelaide Bank yesterday became the first to lift rates by more than Tuesday’s official 0.25% rise, as signs mount that the lending squeeze is set to get even tighter in the months ahead.

Adelaide Bank lifted rates to mortgage brokers by 0.4%, saying it had been forced to lift rates by 0.15% more than the Reserve Bank of Australia because of increased costs of wholesale borrowing.

It remains unclear whether other financial institutions will follow Adelaide Bank. ANZ hinted that it was considering how to deal with increased wholesale lending costs earlier in the week.

“We have the added consideration of the ongoing pressures in wholesale markets, which have raised funding costs (for banks) further,” an ANZ spokesman said.

And now a senior Reserve Bank official has signalled that these “ongoing pressures” are likely to feed through into both higher rates and tighter lending conditions for business and consumer borrowing.

RBA assistant governor Guy Debelle told a conference in Sydney that the evidence so far was that banks have responded the credit crunch by lifting interest rates, not by tightening lending conditions.

“Were the banks to experience difficulties in continuing to access funding, one might see a quantitative constraint placed on credit provision in addition to that provided by price,” Debelle said.