Adelaide Bank increases rates

by Richard Kilner

Story link: Adelaide Bank increases rates

Yesterday Adelaide Bank became the first in Australia to increase its interest rates above the official increase made by the Reserve Bank.

Tomorrow the RBA board will be meeting to discuss the interest rate situation.

Adelaide Bank has raised the rate by 0.25%, citing the increased cost of borrowing money caused by the US subprime mortgage crisis. The bank has also said it believes other financial institutions will follow in its footsteps soon.

The change will affect roughly 40% of the firm’s mortgage portfolio, thirty thousand customers across Australia.

Newly elected Prime Minister Kevin Rudd has responded by saying that banks should be careful when deciding whether or not to move beyond the official rates set by the Reserve Bank. He went on to say that the banks should bear in mind what effects rate increases could have on their clientele.

It is predicted that tomorrow’s RBA meeting will not alter the current rate level. However, official increases are expected in 2008, and the banks themselves may increase their own rates beyond the official limit.

No bank is expected to immediately follow Adelaide’s lead, though the option remains available to them.