Almost 4 days have passed since the Reserve Bank cut the Official Cash Rate by 50 basis points to 2.5% and the banks have cut virtually nothing. Westpac cut its 6 month mortgage rate by 40 basis points to 5.39% on Thursday morning and Rabobank cut its farming variable rate by 50 basis points shortly afterwards. Our Mortgage rates table, which would normally show a sea of rates changes after an OCR cut, shows only a few changes by small institutions. Wholesale interest rates known as swaps rates for 1 and 2 year terms fell by around 20 basis points on Thursday and Friday. The interactive charts for this are below. Banks watch these wholesale rates closely before announcing cuts. Since Thursday there has been an ominous silence from almost everybody. What are the banks waiting for? Or have they decided not to pass on the rate cuts? Adam Bennett in the New Zealand Herald has reported that anger is building about rates not being cut in the wake of the move.
Meanwhile, readers' views posted on Herald Online suggest many people believe banks are not passing on OCR cuts sufficiently. That view has been backed by bank workers' union Finsec, whose general secretary Andrew Casidy on Thursday called for the banks to open their books so customers can see how much their bank is making from home loans. "Banks should disclose their costs of borrowing and the interest rates they charge to the Reserve Bank, who could then publish this information in a comparative table," said Casidy. "Customers could use this information to decide if their bank is being fair in what they charge and how this stacks up against other banks."What I think It's possible the banks are hoping they won't have to cut rates and are waiting for someone else to jump first. They're doing this because their profits are under intense pressure from falling profit margins on borrowing and lending both locally and internationally, and because they face higher bad debts. Contrary to the kneejerk reaction from some unions and lobby groups, including Federated Farmers, banks are not gouging profits. Adam Bennett's story, and the comments from Casidy, suggest that the banks do not disclose enough data on their profitability to know whether they are gouging. This is simply not true. I am so definite on my views on this because I have researched the banks general disclosure statements and the two bank results through so far from the March quarter. I wrote an analysis on this two weeks ago called "Bank profits on interest rates are falling, not rising". The table here shows profits on interest rates are falling for all the major banks except Kiwibank.
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