Interest rate cut great news for exporters; banks margins widening?

Given the softening in demand in world markets, exporters need today’s big cut to the official cash rate to keep downward pressure on the New Zealand dollar, says Bruce Goldsworthy, acting chief executive of the Employers & Manufacturers Association (Northern).

But business in general will be watching keenly to see that the banks take heed of Dr Bollard’s warning to pass on lower wholesale interest rates, he said.

“For exporters it’s vital that our interest rates do not get too far out of whack with those in Australia and elsewhere lest our currency fall victim to offshore speculators and/or investors in our debt instruments,” Mr Goldsworthy said.

“To stimulate investment in business and jobs it’s important too for the cuts to interest rates to be passed on in full.

“So we need to see more explanation from the trading banks on the reasons why their margins appear to be widening as the wholesale interest rate comes down. Though the OCR has been reduced by 1.5 percent, bank announcements thus far indicate cuts of around one percent.

“Furthermore the banks making the most noise about the need for big cuts to the OCR ahead of today’s announcement appear to be the slowest off the block in reducing their own rates.

“Business wholeheartedly welcomes and endorses Dr Bollard’s comment: ‘To ensure the response we are seeking, we expect financial institutions to play their part in the economic adjustment process by passing on lower wholesale interest rates to their customers.’”