The balls in the banks court now

Today’s decision to stay further cuts to the Official Cash Rate (OCR) places the emphasis firmly on the banks to pass on the full extent of previous cuts.

“Reserve Bank Governor, Allan Bollard, expects lower interest rates to work their way through the system and he indicated there is scope for further reductions in short-term borrowing rates as well,” says Philip York, Federated Farmers Economics and Commerce spokesperson.

“He has also given a clear indication that he expects the OCR to remain at, or below, the current level through until late 2010. There should, therefore, be scope for banks to reduce their short to medium term borrowing rates.

“We now need the banks to play ball by dropping farm overdraft and mortgage interest rates. To put this in perspective, rural debt in New Zealand totals $45 billion, so a 1 percent fall in interest rates saves the agricultural sector $450 million.

“The Federation also notes Dr Bollard’s concern over New Zealand’s elevated exchange rate and we agree that, if it remains high, it could jeopardise the country’s economic recovery,” Mr York concluded.