The powerful Finance and Expenditure Select Committee has wimped out on an enquiry into interest rates charged by banks.
And Labour and the Greens are furious.
It’s no surprise really. Any such enquiry was likely to bear little, if any, fruit and goes to show that the authorities are reasonably powerless when it comes to influencing where interest rates should go.
If you think about it the MP enquiry was never going to win whatever decision they made.
If they found that the Australian-owned banks were “rorting” New Zealand, as the bank workers union Finsec alleges, what would they do? Introduce regulations telling banks where they could set their rates?
Fat chance. Robert Muldoon might have tried that, or you might see it in some communist state. In an open, free market economy like New Zealand, no way.
If they found that everything was fine, then they would get pilloried for being duped by the banks – which is what is happening but to a lesser degree by ditching the whole idea.
On top of all this any such enquiry would take ages. Banks are complex organisations and they operate in different ways. While the big banks use a lot of funding from offshore to fund their loans, other organisations like Kiwibank, TSB and SBS primarily fund their home loan book domestically.
In manufacturing terms the raw materials come from different sources and have varying prices.
A possible parallel to this sort of enquiry is what the Commerce Commission has done with mobile phone charges or its reports on electricity generation.
Lengthy, complex and reasonably fruitless.
An enquiry would also be a little awkward for the government too, considering it owns the bank, which until recently has been the market leader in lowering rates.
Kiwibank, like its Australian peers, didn't pass on the last official cash rate cut. It last lowered its floating rate in February and the OCR was cut 50 basis points on March 12 and another 50 points on April 30.
The proposed MP enquiry was nothing more than a political stunt to make it look as though MPs were actually doing something to help the Kiwi battlers in the mortgage belt.
Right now people borrowing money can take heart that short-term rate are at historical lows.
This graph here shows very clearly that floating and one year rates are well below their historical five year average.
What’s more, there still seems to be some competition in the short-term maturities with some of the smaller institutions cutting six-month rates this week. No one, though, has beaten the low of 5.39% set by Westpac and HSBC.
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