Banks have no reason to hike rates: Swan

Federal Treasurer Wayne Swan has taken another swipe at the nation's big banks as
the government announced it would invest a further $8 billion in residential
mortgage-backed securities to increase competition in the home-lending market.
"The government would be quite angry if they moved outside the official Reserve Bank
rise," he said of speculation the big four banks are contemplating interest rate
hikes over and above central bank adjustments.
The Commonwealth Bank, National Australia Bank, Westpac and ANZ last week matched
lifts in their lending rates to the Reserve's 0.25 per cent hike to its cash rate,
the first increase in 19 months off a 49-year low.
Financial markets are pricing in two more increases before the end of 2010 and
possibly four next year, taking the cash rate to five per cent.
Westpac has confirmed that lending rates could outpace rises in the official rate
because of wholesale funding pressures, a move likely to be matched by its
competitors.
Mr Swan has little sympathy for that argument, saying there was no justification for
any lending rate increase "over and above" any decision by the Reserve Bank.
"I think many Australians will have taken them at their word when they said last
week, publicly, that there was no justification for that action at all," he told
reporters in Brisbane on Sunday.
His comments came as the government announced it was investing another $8 billion to
help small lenders to compete in the mortgage market.
The government has been criticised for creating an environment, through its
wholesale borrowing guarantee, that has allowed the big banks to snare a bigger
share of the home-lending market at the expense of smaller banks and non-bank
lenders.
Mr Swan blamed the global financial crisis, and not the borrowing guarantee, for
creating a "still weak" securitisation market.
The decision also comes six weeks after the government rejected an opposition
proposal to use the Future Fund to make a similar investment in mortgage-backed
securities.
Mr Swan described the latest investment as a "temporary extension" coming on top of
$8 billion already committed to the sector in September and October last year.
"This investment will provide a major boost to smaller lenders and promote
competition in the mortgage market, helping to put downward pressure on borrowing
rates over time," he said in a statement.
"Securitisation is an important source of funding for smaller mortgage lenders, and
enables them to compete with larger lenders."
The investment would not impact on the government's budget deficit because it was
acquiring "high quality AAA-rated assets".
Mr Swan will outline to an Australian Business Economists function in Sydney on
Monday "where fiscal policy goes from here" as the opposition continues to argue for
a winding down of Labor's economic stimulus.
"I'll be talking about the design of the stimulus, and how its impact has peaked and
is already tapering away to make room for a private sector recovery," the treasurer
said in his economic note, released on Sunday.
The opposition continues to argue that using unspent stimulus funds for too long
will put pressure on interest rates.
"All we are talking about is a gradual wind-down in the additional stimulus, in the
light of the fact that the Australian economy is showing ... resilience," Senate
opposition leader Nick Minchin told Network Ten.