30 Jan 2009

Reserve Bank concerned at short-term lending charge

9:21 pm on 30 January 2009

The Reserve Bank says it is talking to trading banks about the margin they charge on short-term lending to customers.

All the major trading banks dropped their mortgage rates on Thursday after the Reserve Bank lowered the Official Cash Rate rate to 3.5% - its lowest level since 1999.

Reserve Bank Governor Alan Bollard told a meeting of businesspeople in Christchurch on Friday the cost of funding for banks on offshore money markets remained high and this was being reflected in the rates being charged to customers for longer term borrowing.

But he pointed out that short-term money market rates had come down a long way while banks' lending margins had moved up.

Dr Bollard said he would not tell banks what level to set their rates at, but he could use the Reserve Bank Act to influence them to lower shorter term lending rates.

He said the Reserve Bank would be talking to lenders about the margin they charge customers and why short-term rates remained so high.

The Reserve Bank has cut rates by a total of 475 basis points since it began its easing cycle in July.

That makes it the most active rate-cutter among the world's 11 leading central banks - the five that decide monetary policy for the G7 nations plus six other big central banks, Reuters reports.

Most analysts see New Zealand's rates at a low of 2.5% by mid-year.