Key open to Reserve Bank advice on rates

The Government will consider any Reserve Bank proposals on how to get banks to trim floating mortgage rates - which the central bank has again said appear to be "unusually high" - Prime Minister John Key said yesterday.

The Reserve Bank took the unusual step of issuing a statement to clarify its views on banks' interest margins which some commentators, businesses and MPs say are too high and are worsening the impact of the recession.

The Reserve Bank said a large part of its 575 basis points in cuts to the official cash rate (OCR) since July last year had been passed on to household and business borrowers but increases in the cost of bank funding had offset about 100 to 150 basis points of that reduction.

"On balance, we believe the pricing of the banks' fixed-rate lending products is reasonable given the underlying cost of funds and taking into account the margins typically earned on these products over time," the Reserve Bank said.

"However, the pricing of floating-rate mortgages appears unusually high over recent months and we believe there is some scope for further reductions in these rates without compromising the viability of this lending."

To read the full NZ Herald story, click here

Posted: 8 Jul 2009

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