Australia Government Warns Banks Not to Raise Home Rates

Australia's Treasurer Peter Costello on Wednesday warned the country's major banks not to raise their mortgage rates to maintain margins in the face of higher borrowing costs in markets.

Speaking to reporters, Costello said the major banks were extremely profitable and had no reason to raise the rates they charge on housing loans.

"There is no reason whatsoever for the major banks to lift rates to housing borrowers. There has been no movement in official interest rates," Costello said.

Turmoil in global credit markets has pushed up the rates banks charge each other to borrow and some in Australia have warned that they would ultimately have to respond by lifting rates for mortgages.

Mortgage rates and housing affordability have become politically very sensitive as the Liberal National government faces a tough election later this year.

Costello said Australian could not be immune from the global uncertainty, and said the government and regulators were monitoring developments, but Australia did not have the same problems with risky loans as the United States.

"Here in Australia, we have a very well regulated financial system. Our banking sector is highly profitable and well capitalized. Our economy is strong and our budget is in much better condition than America," Costello said.

"We have good prudential and regulatory arrangements, and above all, a strong economy with strong economic policy."