Credit crunch means interest rates will rise: NAB CEO

Banks will have to lift interest rates to compensate for increased costs caused by the international credit crunch, NAB chief executive John Stewart says.

In the strongest statement yet by a senior Australian bank executive on the impact of the credit crunch, Stewart told The Australian Financial Review that banks would have to increase the bottom line cash rate by up to 20 basis points.

“The price of credit has gone up and it won’t be as cheap for a long time, and at some point that will be passed on,” Stewart said.

The international credit crunch has caused lenders on international financial markets to become more risk averse, in turn pushing up the price they charge to lend money to banks.

And the hike is likely to come even if the Reserve Bank of Australia lifts interest rates when it next meets on November 6, Stewart says.

The comments will be seen in the context of the release of tomorrow’s consumer price index (CPI) figures, which will be crucial in determining whether the RBA will lift rates when it next meets.

The market predicts that the CPI for the September quarter will come in at around 0.7%. It is thought a result any higher will prompt the RBA to raise rates.

But another factor in the RBA’s deliberations will be whether the international credit crunch continues to pose any further risk to the health of the domestic and global economy.

In that context, Stewart’s message – that there is more pain to come – could be designed to dampen down expectations of a rate rise in the lead up to tomorrow’s CPI data.


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