Pressure increasing on Australian central bank to ease policy

The prospect of a rate cut by Australia's central bank as early as November has increased after Australia's leading home loan lender followed Westpac's lead to bump up rates, tightening monetary conditions in an already fragile economy.

The Commonwealth Bank of Australia (CBA) will lift its standard variable mortgage rate for owner-occupiers by 0.15 percentage points to 5.6 percent from November 20.

The move ends a week of uncertainty after Westpac controversially upped variable mortgage rates by 0.20 percentage points, to begin on the same day.

Australia's two other major lenders, ANZ and the National Australia Bank, combined with CBA and Westpac hold above 80 percent market share, are now likely to follow.

Within minutes of the move, the Australia dollar dropped almost half a cent to 71.83 U.S. cents.

Shane Oliver, chief economist at AMP Capital, told Xinhua on Thursday now is not time for mortgage holders to see their rates go up.

"Risk is if those rates do go through, then that will affect consumer spending and growth in the economy," Oliver said, noting annual growth is currently below trend at two percent."

"Whilst the reserve bank would prefer not to cut rates again, they'd also prefer not to see higher [retail] interest rates at this point in time."

The RBA holds its next policy meeting on Nov. 3, where it had been widely tipped the central bank will hold rates at the record low 2.0 percent prior to Westpac's move last week.

CBA, however, didn't follow Westpac's move an increase rates for mortgage holders, helping the bank's margins, while blaming tighter regulations in response to the government's Financial Systems Inquiry requiring increased capital holdings.

"We have now reviewed our home loan pricing in light of these changes," CBA retail banking chief Matt Comyn said, noting the bank had already increased its capital position by 5.1 billion Australian dollars."

Decisions to increase interest rates was "carefully considered" and took into account the needs of customers and shareholders alike, Comyn said.

Meanwhile the RBA paid a 1.9 billion Australian dollar (1.37 billion U.S. dollar) dividend to the Australian government from an underlying net of 6.9 billion Australian dollars (4.97 billion U.S. dollars) for the 2014/15 Australian financial year, according to its annual report tabled in parliament on Thursday.

RBA governor Glenn Stevens said 1.6 billion Australian dollars (1.15 billion U.S. dollars) of the bank's 3.5 billion Australian dollars (2.52 billion U.S. dollars) distributable earnings were placed into the bank's financial reserves, at the request of the Australian Treasurer.

"This reserve stood at 12.7 billion Australian dollars (9.15 billion U.S. dollars) at balance date, a strong position given the risks on the Bank's balance sheet," Stevens said.

The 6.9 billion Australian dollar (4.97 billion U.S. dollar) net profit, second largest in the RBA's history ,discounting 2013/14 inflated profit from a government grant to increase reserves, was largely helped from the fall in the Aussie dollar boosting value in its foreign reserves portfolio. Enditem