Banks refuse to pledge reduction in rates

Press, 2 June 1989, Page 4

Banks refuse to pledge reduction in rates

By

PATTRICK SMELLIE

in Wellington

Campaigners against high interest rates met for two hours yesterday with banking industry leaders, and decided to seek joint meetings with the Government and the Reserve Bank.

The coalition of farming, manufcturing, tourism and consumer groups came away from the meeting without pledges from the banks to reduce rates.

But a spokesman, Mr Barry Brill, said the meeting had brought an admission from the bankers that interest rates on deposits were 2 to 3 per cent too high.

“That in itself is a milestone,” he said. “Now we have to get them to do something about it.” Another spokesman, Mr Brian Chamberlin, said the banks had blamed the over-all level of interest rates on Government policy and the Reserve Bank’s running of monetary policy in particular.

Meetings would be sought with the Governor of the Bank, Dr Don Brash, and the Minister of Finance, Mr Caygll, before the Budget in July.

Mr Chamberlin said the banks had been unable to answer charges that some of their members were charging too much for their services and placing too high a risk premium on their lending to small and mediumsized businesses.

But the chairman of the Bankers’ Association, Mr Jim Mac Aulay, had urged business people to take up such issues with the individual banks concerned.

The banks were now experiencing “consumer resistance” to high interest rates, and this was

forcing them to be more. competitive, said Mr Brill. Farmers had recently reported a more helpful and competitive attitude from some banks.

This was particularly as farmers were begining to “make the competition work” by tendering out their financial needs to different banks.

Mr Brill said the meetings with the Reserve Bank would attempt to find out whether it would tolerate banks leading interest rates down, or whether monetary policy settings would be used to penalise banks which tried to drop their rates. The banks had also been urged to do more to encourage people to believe inflation was falling.

“Instead of proudly displaying competitive deposit rates, banks should be providing downward pressure by displaying more competitive lending rates,” a paper prepared by the lobby group said. Mr Caygill yesterday said there was no evidence that Government reliance on short-term borrowing was keeping interest rates up.

Answering a Parliamentary written question, Mr Caygill said this possibility had been investigated.

But there was no evidence to support the suggestion. Nor was there much evidence that moving to borrow longer term would lead to higher longterm interest rates.