Dwindling competition is driving bank rate rises and analysts sense that the fall in the real estate prices are due to the rise of bank interest rates. Most of the banks have announced bank rate hikes over the past few months outside of the RBA’s official lift starting with Commonwealth and ANZ bank followed by National Australia Bank.

It has been found that dwindling competition is one of the major reasons for the hike in bank rates. It is mainly due to the monopoly situation that exists where small time money lenders have almost vanished from the scene due to reasons like untimely interest payments by the borrower. Contrary to this, non-bank lending institutions have reduced their lending rates to attract the customer to increase their business share.

Banks like the Commonwealth and ANZ have hiked interest rates half a percent more than the Reserve Bank. It is agreeable that the banks cost of borrowing has increased which is leading to these hikes, but be rest assured that it will comeback to the normal rates sooner or later. Apart from certain global scenarios like the crude price increases; funding is hard to come by and nobody is sure how long this down slope will last for.

So how do these banks get their funds? Banks get their cash through customer deposits whereas non-bank lenders seek their money from other sources. The global credit crisis is making it hard for non-bank lenders to attract customers they need to match bank rates.

The Mortgage and Finance Association comprises of mortgage brokers and private lenders consisting of around thirteen thousand. They are working towards a reduction in the rate causing excess rivalry in this segment. Of course the competition has to be healthy, though a sector without any competition also tends to monopolise the situation.

The Australian government should create such initiatives as those similar to the Canadian mortgage system where non-bank lenders have access to low-priced funds to enable them to give a healthy competition to the banks.

Analysts agree in spite of Reserve Bank increases the bank rates will eventually come down. It is also predicted that the funds will stabilize. It is also projected that a $21.7 billion economic growth and the inflation could be curbed by the year 2008-2009. It is believed that the federal government is spending too much which could exacerbating the problem.

Interest rates are nearly a 12 year high of around 7.25%. Efforts are being taken to bring about inflation around 2% to 3%. A $46 billion tax curb would have a contradicting effect on marker spending. Unemployment has been increased around 4%. A 33 year low and the growth have been shaved of 2.75%.Non bankers have diminished due to increases in interest rates as they could not sustain the competition with the banks who have a larger funding rate base.