Last week, National Australia Bank (NAB) and Australia and New Zealand Banking Group (ANZ) hiked their fixed interest rates on home loans.

Meanwhile, the central bank cash rate has stood at a record low of 1.5% since August, and economists remain divided as to whether the RBA’s next move will be another rate cut or a rate hike. 

“The banks’ interest rate increases may well be a gift to the Reserve Bank of Australia, giving it flexibility to reduce the benchmark interest rate without worrying about further fuelling the overheated housing market,” said Narayanan Somasundaram in an opinion piece for Business Insider Australia.

Somasundaram lists five reasons why the Reserve Bank may actually favour slightly higher mortgage rates, and why the banks might shift rates independent of the Reserve Bank:

  1. RBA wants to promote financial stability.

Philip Lowe, governor of the RBA, has expressed his reluctance to drop rates further for fear of worsening the nation’s surging property prices and record levels of household debt. “Banks increasing interest rates soothes some of these fears and gives room for the RBA to act if inflation drops further or the economy needs a boost,” Somasundaram said.  

  1. RBA wants to leave the cash rate unchanged for now.

If banks start increasing their interest rates, then they’re essentially doing their part to cool the Aussie residential property market, which registered a 10.9% growth last year, according to data from CoreLogic. If banks do their part, the RBA can let the cash rate sit at 1.5% for a little longer to support the non-residential parts of the economy.

  1. The cost of funding home loans is rising.

Funding costs are rising for Aussie banks as global bond yields increase and the US prepares for higher interest rates. Non-deposits (or money from credit markets) account for a third of the largest Australian banks’ funding needs, and the spreads are starting to rise. This in turn is forcing the banks to examine their lending rates more closely.

“There are a range of factors that influence the funding that NAB – and all Australian banks – source, so we can provide home loans to our customers,” Antony Cahill, NAB’s chief operating officer, said in a recent statement. “The cost of providing our fixed rate home loans has increased over recent months.”

  1. The banks want to maintain lending profitability.

David Ellis, banking analyst at Morningstar, believes that banks might soon hike up variable mortgage rates, which make up a quarter of total outstanding home loans. This is a key measure of lending profitability, as banks try to offset higher funding costs and protect interest margins. As noted by Somasundaram, the measure has slipped to the lowest level since the GFC amid competition and record low lending rates.

  1. The banks are monitoring their lending rates. 

The banks, after enjoying seven years of record profit growth, are beginning to see a slowdown as corporate bad debts rise and competition intensifies. Moreover, capital requirements are increasing, stemming from global regulatory measures aimed at preventing another worldwide financial crisis.

“With banks already capping their dividend payout ratios to boost retained earnings, they are also expected to be less generous with lending rates,” Somasundaram said.