Rate rise reluctance 'surprising': Hewitt

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Reluctance from the major banks to raise interest rates independently of the Reserve Bank may end up burdening borrowers with a more hefty hike in their variable rates, according to AFG managing director Mark Hewitt.

Banks have in recent days faced pressure from the Federal Government and Opposition to rein in their desire to raise rates independent of the RBA, with Treasurer Wayne Swan yesterday calling any such move "cynical", and Joe Hockey arguing for an inquiry into the banking sector.

However, AFG's Mark Hewitt said despite the public and political pressure, bank reluctance to raise rates to date has been surprising.

"We have been very surprised that the banks have not moved independently to date," Hewitt said. "Whilst it would not have been popular from a political or public point of view, we think moving earlier could have meant a 15 basis point increase as opposed to the 40 basis point we are looking at now."

Hewitt argues that as a measure of bank costs, the Reserve Bank cash rate is "probably a lot less relevant than in the past due to changes in the way banks fund their books".

Following commission cuts that have hit brokers due to the funding cost pressures of the banks, Hewitt added that it was also important profitability be maintained by participants in the broking industry.

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