MP's deliver banks another wet bus ticket slap

Thursday 9th July 2009

The select committee that baulked at holding an inquiry into whether trading banks are unduly holding up interest rates has issued a report expressing deep concern about the banks' behaviour.

The report of the finance and expenditure select committee was tabled in Parliament today and includes several serious expressions of concern over whether banks are being overly conservative by holding lending margins high as they seek to weather the global credit crunch.

"We recognise the need for the banking sector to remain profitable in the current economic environment, but we also believe that it should not be unduly so, particularly given the current recessionary environment," the committee's report on the Reserve Bank's June Monetary Policy Statement.

"We are concerned that this may be the case at present."

In light of the RBNZ governor Alan Bollard's view that banks were setting interest rates higher than required by conservative policies, the committee "urge(s) the banks to reduce their short-term lending rates further, as a low interest rate environment is critical to New Zealand's economic recovery and better reflects the current recessionary conditions".

The committee was also concerned at the potential undermining of the central bank's main monetary policy tool, the Official Cash Rate, and sought "further careful consideration" of the issue.

"There is a current debate regarding the importance of domestic interest rate influences on the exchange rate, relative to other international factors such as investor risk preferences.

"If banks are not fully passing on OCR changes in a timely manner, this could reduce the effectiveness of the OCR as a monetary policy instrument, and potentially feed into interest and exchange rate interactions."

Businesswire.co.nz

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