11 Nov 2009

Banks fail to pass on full rate cuts - inquiry

9:04 pm on 11 November 2009

An inquiry by Opposition parties has found banks have not passed on to borrowers the full effect of interest rate cuts made by the Reserve Bank since late 2008.

The inquiry by the Labour, Green and Progressive parties found the country's four major banks are effectively lining their own pockets.

The Official Cash Rate has fallen from 8.25% in June last year to 2.5% now.

The inquiry says homeowners, businesses and farmers were stung for about $2.7 billion dollars by banks failing to pass on all of the cuts.

It suggested the Reserve Bank be given more power to force retail banks to pass on interest rate cuts.

Labour's finance spokesperson David Cunliffe says the Reserve Bank has limited power when it comes to managing interest rate changes.

"It can certainly obtain information, but then there appears to be a gap between that and its power to intervene only in the case where the financial stability of the system is threatened.

"Giving the bank arguably some further supervisory powers over interest rate management may well be something that policymakers will need to address."

Green Party co-leader Russel Norman says the Official Cash Rate set by the Reserve Bank allows the price of money to be controlled but not the amount of capital coming into New Zealand.

"If anything it works against us. We increase the OCR, the amount of capital coming into New Zealand increases, attracted by the high interest rates, which then drives inflation because it pushes up housing prices."

Finance Minister Bill English is dismissing the report, saying the review failed to make any new findings.