Banks must follow suit by cutting business overdraft interest rates

“Cutting the Official Cash Rate (OCR) by a further 100 basis points will bolster farm businesses – but only if the banks play ball,” says Philip York, Federated Farmers economics spokesperson.

“Federated Farmers suggests the Reserve Bank of New Zealand (RBNZ) reduce the current OCR by at least 100 basis points to four percent at its next review on Thursday.

“Federated Farmers is, however, also urging the RBNZ to closely examine the growing bank margins highlighted in the Federation’s survey released last Thursday. The survey proves banks are not passing on the full extent of the RBNZ’s last large cut in December 2008.

“The survey revealed disappointing news for farmers in that the average overdraft rate for farm businesses is 10.40 percent - over twice the current OCR.

“Since the RBNZ began to cut the OCR back in July last year, farm businesses have not seen these cuts reflected in their financial facilities. If the OCR is cut again on Thursday, this must be addressed by banks.

“By not passing on OCR savings to their business customers, banks are not allowing businesses to retain profit, reduce debt and retain staffing levels in the current economic climate.