RBNZ's Spencer wants more competition in floating mortgage rates

Reserve Bank Deputy Governor Grant Spencer said he would like to see more competition between banks in the area of floating mortgage rates, where margins to the Official Cash Rate were the highest he had seen. "The margins have increased across the board because of the increase in risk and the adjusting of the pricing of risk, triggered by the International Credit Crisis, and that's been reflected in the margins of the costs of funds for banks and their lending margins," Spencer told a news conference on Wednesday after the release of the bank's half yearly Financial Stability Report. "We do see a considerably higher margin on floating rate mortgages than on most fixed rate mortgages, so in our view there's probably more scope for competition in the floating rate mortgage segment of the mortgage market," Spencer said. "Those margins are as high as I can recall on the floating rates," he said. Later in the press conference Spencer said he was disappointed that the banks had passed on the Official Cash Rate cut only sporadically. "The OCR reduction at the end of April had some impact. A couple of banks reduced rates, not floating rates. Bank bill rates are down so a lot of the business lending rates are down," Spencer said. "It's fair to say we have been disappointed with the response to date, but the OCR-retail rate relationship is not a precise one. Sometimes the lags are long and there are other factors affecting the actual mortgage rates other than the OCR and we have to acknowledge that," he said. "We may see further reductions in mortgage rates as some of those other conditions in the markets change. We're not considering at this point changing our policy approach or introducing any unconventional instruments that we have seen in other countries." Spencer was asked if the Reserve Bank's monetary policy potency had waned. "We don't think that the OCR has lost leverage. There are other factors influencing the recent response of mortgage rates to the end of April OCR cut. That's not to say the mechanism is broken," he said. "We pushed the accelerator pedal and we didn't get a huge pickup this time, but that doesn't mean we're going to trade in the car."