10 Oct 2008

Key urges Reserve Bank to cut interest rates 'sooner'

10:59 am on 10 October 2008

National Party leader John Key has increased pressure on the Reserve Bank to cut interest rates, saying it should do so sooner rather than later.

Mr Key says large interest rate cuts are needed to help offset the effects of turmoil on international financial markets.

He says he had expected the Reserve Bank to cut interest rates on Wednesday following the move by the Australian Reserve Bank to cut rates there from 7% to 6%.

Mr Key says Reserve Bank governor Alan Bollard should cut interest rates by a minimum of 50 basis points for the sake of the banking system and the economy as a whole.

"Interest rates do need to come down in New Zealand," Mr Key said.

"We'd be eager for him to be addressing that issue, and whether he addresses it on October the 23rd or earlier is ultimately his call, but we're in the state of international turmoil on the financial markets, and I think it would be in New Zealand's best interests for those interest rates to come down as rapidly as they can, hopefully before October the 23rd."

A spokesperson for Labour's finance spokesperson Michael Cullen says that by law in this country the Reserve Bank is independent of politicians, and it would not be appropriate for the Government to say anything that could be interpreted to put pressure on the operationally independent bank.

Bank relaxes loan requirements

Meanwhile, the Reserve Bank has taken steps to ease funding pressures on local banks, by relaxing requirements for loaning them cash.

The Reserve Bank earlier said it would accept residential mortgages as collateral, if the mortgages were rated by a credit rating agency.

It says it will abandon that requirement while banks get the ratings completed.