Key wants banks to pass on OCR cuts; suggests bailout fund not needed
27th Jan 09, 3:00pm
New Zealand Prime Minister John Key has called on banks to pass on as much of the cuts in the Official Cash Rate as they can and appears to have ruled out any New Zealand version of Australia's A$4 billion emergency loan fund for property developments. Asked if New Zealand needed such a fund to replace any foreign lenders who might leave, Key said at his weekly post-cabinet press conference on Monday that New Zealand borrowers were not so exposed. "I suspect our position is a little bit different. Our foreign banks are the Australian banks. We don't have a huge amount of construction being underwritten by non-Australian foreign banks here in New Zealand. We have some, but it's a much smaller component," Key said. Asked if banks were passing on cuts in the OCR fast enough, he said: "We saw some positive signs about a week to 10 days ago. I suspect that was in anticipation of Alan Bollard acting this week. We are starting to see that move, but obviously we would encourage the banks as much as they possibly can to pass through interest rate cuts that have occurred or may occur in the future. They are the lubricant that allows the economy to keep operating." Key said it was likely the RBNZ would cut the OCR, but that the RBNZ remained independent. "Given every economist on the planet has predicted that is going to occur, I imagine it will," Key said. Asked if Federated Farmers was right to criticise banks for not passing on OCR cuts as fast as possible, Key said: "It's not just Federated Farmers. There are quite a number in the business community that feel that they haven't necessarily received that benefit fast enough. In fairness to the banks, the OCR is not where they are effectively borrowing money at. They are largely being sourced from offshore and that premium is high. Anything that the banks can do to pass through those cost savings will be appreciated and will help the economy." * This article was first published in our daily subscription newsletter for the banking and finance industries. The email costs NZ$365 per annum and carries exclusive news and analysis for New Zealand banking and finance industry executives, regulators and investors. Sign up for a free trial here.