KEY POINTS:
Alan Bollard put the hard word on the banks yesterday, telling them to pass on lower wholesale interest rates to their customers.
The Reserve Bank governor was speaking from the moral high ground. He has just delivered the second supersized cut to the official cash rate in six weeks.
Yesterday's cut from 6.5 to 5 per cent is bigger than the banks were calling for as recently as a week ago.
In addition, the Government has guaranteed first the banks' retail deposits and then their wholesale funding, and the Reserve Bank has opened up its equivalent of a pawnbroker's window to lend the banks money on the security of the mortgages they hold.
What more could they want?
But while wholesale interest rates have fallen by 2 percentage points over the past three months, the average mortgage rate people are paying is only now starting to fall.
That is largely because people piled into cheaper fixed-term loans when interest rates were rising, and it takes time for them to move on to new, and only recently lower, rates.
It also reflects the fact that about a third of the banks' mortgage money comes from wholesale markets overseas which froze up and are showing only tentative signs of thawing now.
Dr Bollard acknowledged that it had not been an easy time for banks.
But their margins had stayed quite high, and indeed grown, he said, and it was time for them to share some of the pain and pass on rate cuts.
The Reserve Bank expects the average mortgage rate to fall by about 1.5 percentage points over the next two years, to just over 7 per cent.
While mortgage rates on offer have fallen, the lower rates tend to be available only for borrowers with loans of less than 80 per cent of the value the property.
Some extra relief is coming from lower petrol prices and tax cuts, but households remain under pressure, the Reserve Bank says, with the cost of living well above where it was a year ago and mortgage rates still high.
The banks have had the benefit of 3.25 percentage points of official cash rate cuts, as well as retail and wholesale funding guarantees, and liquidity support measures.
It is time for them to come to the party.
