One of the country's biggest banks, Westpac, is again defending interest rates in the face of criticism from the Reserve Bank, which says borrowers are being charged too much for floating mortgages.
In an analysis released on Monday, the Reserve Bank criticised retail banks for holding floating mortgage interest rates "unusually high" in recent months, given the fall in the Official Cash Rate.
It said banks have not passed on between one and 1.5 percentage points of recent benchmark rate reductions, because of the higher cost to banks of borrowing.
While floating rates appeared high, fixed rates look about right, the bank said.
Taranaki-based TSB Bank, which raises all of its funds inside the country, agrees with the central bank.
However, Westpac's recent report into banks' margins defends the level of fixed and floating rates.
The bank's markets economist, Michael Gordon, says the Reserve Bank's latest paper is "jawboning" and doesn't get to the heart of why it considers margins on floating rate mortgages to be problematic.
Changes in the Official Cash Rate have been passed on to both fixed rate and floating rate mortgage customers in a similar fashion, he says, and the Reserve Bank seems to be simply making a judgement on what level it thinks is right.
Mr Gordon says funding costs have risen, so the full benchmark rate cuts were never going to be passed on.
He says Westpac and Reserve Bank research shows the cost of funds to banks are about one to 1.5 percentage points higher compared to the Official Cash Rate than normal.
Reserve Bank 'irked' - PM
Prime Minister John Key has said lower interest rates are beneficial to the economy and if the Reserve Bank has specific suggestions it should present them to Finance Minister Bill English.
Mr Key said the bank was "irked" that its most recent cut was not passed on to consumers and there is currently an "arm wrestle" between the Reserve Bank and retail banks.
Mr English told Morning Report there is no particular lever to pull to get interest rates lowered. He says customers who are concerned that they are paying too high an interest rate on floating mortgages, business rates or credit cards should shop around to get lower rates.
Farmers, union criticise banks
Federated Farmers and a finance sector union have joined the chorus of criticism of banks for failing to lower interest rates.
Economics spokesperson Philip York says the organisation endorses the Reserve Bank's conclusion and plans to meet the major trading banks in the next fortnight to ask why there is a disparity between farm mortgage interest rates and residential home loans.
Finance sector union Finsec general secretary Andrew Cassidy says is clear from Reserve Bank figures that the banks could lower floating interest rates and also potentially credit card interest rates.
Mr Cassidy says historically banks have taken very good profits out of the New Zealand economy and are continuing to make good profits in these difficult economic times.