SYDNEY: Australia and New Zealand Banking Group left its variable mortgage rate unchanged on Friday, though it said funding costs were elevated, as it begins setting mortgage rates independent of the central bank.
Australia's fourth-largest lender is the first major bank to separate its interest rate from the official cash rate of the central bank.
The move is aimed at reflecting the rising reliance on offshore funds and distance itself from the political expectation that banks automatically pass on any central bank move.
"In coming to our decision this month we wanted to be clear that these higher interest rates we are now paying our depositors and the elevated prices we are required to pay for wholesale funds are going to be sustained given the volatility we saw late last year," ANZ CEO Australia Philip Chronican said.
"We also assessed our competitive position, the subdued state of credit demand and the overall state of the economy and decided it was prudent to maintain our current rates at this time."
While the central bank meets meet on the first Tuesday of every month except January, ANZ has said its interest rate would be determined second Friday of each month.
Australian banks' reliance on offshore funds to bridge the gap between total loans and deposits means central bank cash rate is not the primary influence on their pricing strategy anymore. Analysts estimate only a fifth of total funds are based on the central bank cash rate.
The four big banks raise about $100 billion annually largely from Europe and the United States, where cost of funds have shot up mainly due to the European debt crisis.
Mortgage rates are a very sensitive topic in a country where more than a third of 8.5 million households have a mortgage and banks are making record profits.
Interest rates and bank profits are close to obsession in Australia where everyone from politicians to baristas to taxi drivers have a view.
For an average mortgage of A$300,000 ($309,300), a cut of 25 basis points equals an extra saving of around A$600 a year.
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