The Reserve Bank has criticised retail banks for holding floating mortgage interest rates too high in recent months in an analysis of interest rate margins released on Monday.
In the document, the central bank says the pricing of floating-rate mortgages appears "unusually high" over recent months.
The current floating rate is about 6.44%, down from a peak of 10.74% last year.
At the same time, the Official Cash Rate has dropped from 8.25% to 2.5%, meaning the gap between the cash rate and floating rates has increased by almost 1.5 percentage points.
The bank says there is scope for further reductions in floating rates but does not say by how much. However, fixed rate mortgages are being set at a reasonable level, it says.
The analysis notes that despite cuts to the Official Cash Rate, other funding costs have increased, including short-term and long-term wholesale funding. It says deposit costs have increased as banks compete to attract deposits.
Taranaki-based TSB Bank chief executive Kevin Rimmington says the competition for fixed rate mortgages has pushed rates down, while he agrees with the Reserve Bank that the variable rate has not come down quite as much.
Banks arm wrestling - PM
Prime Minister John Key says if the Reserve Bank has suggestions on how to make retail banks lower their interest rates it should present them to the Government.
Mr Key says the central bank was irked that its most recent cut to the Official Cash Rate was not passed on to consumers.
He says lower interest rates are beneficial to the economy and if the bank has specific suggestions it should present them to Finance Minister Bill English.
Mr Key says there is currently an arm wrestle between the Reserve Bank and retail banks.
Renewed calls for government inquiry
The Labour Party has renewed calls for a government inquiry into interest rates charged by retail banks, despite Parliament's finance and expenditure select committee deciding against this last week.
Finance spokesperson David Cunliffe says some people on floating home loans are paying up to 1.5% too much interest on their mortgages.
Mr Cunliffe says many banks are not passing on the full margin between their cost of borrowing and what they charge customers.
The Council of Trade Unions supports calls for an inquiry.
Union economist Bill Rosenburg says banks are dealing with increased costs, but floating mortgage rates are still about 0.8% too high - enough to make a difference to struggling homeowners
