The Reserve Bank of New Zealand has taken the unusual step of saying it expected banks to "play their part in the economic adjustment process" by passing on big recent falls in wholesale interest rates to their customers. "Assessing the impact of global credit pressures and the behaviour of financial institutions on the price and availability of credit is a significant policy consideration," the Reserve Bank said in its December Monetary Policy Statement where it cut the OCR by 150 basis points to 5%. "The credit conditions faced by New Zealand households and businesses are tighter than they have been for some time," it said. "The increasing wedge between the expected OCR and retail interest rates is also one of the main motivations for the size of reductions in the OCR since July," the Reserve Bank said. "We do not expect this situation to improve significantly for some time and there is a risk it may deteriorate further." The Reserve Bank said it expected the effective mortgage rate to fall by about 150 basis points over the next two years despite a 325 basis point cut so far in the OCR.
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