Bollard reads riot act to banks and business
Reserve Bank of New Zealand governor Alan Bollard has sent an unusually strong message to banks, local government and electricity companies that they should help the economy recover by lowering profit margins and restricting price increases to contain inflationary pressures and pass on the benefits of a lower official cash rate."Everyone needs to play their part," the Reserve Bank said in releasing the speech to the Wellington Chamber of Commerce.Further monetary policy easings depended on all sectors of the economy responding to reduced demand and not adding inflationary pressures to the system, Bollard said in the speech available here."We need to see inflationary pressures reducing significantly across the board, if we are to keep on easing monetary policy, thus helping the New Zealand economy to recover," Bollard said."It is worth remembering that for the moment, however, inflation rates in New Zealand remain very high. In the September 2008 year CPI inflation reached 5.1 percent, the highest rate since 1990. The higher rates of inflation are broad-based," he said.Bollard said that with substantially lower commodity prices, there was room for further price cuts. Retail margins could be expected to reflect lower costs and the current tight environment. He also noted that banks should not be looking to maintain high profit margins in the current environment.Since July the Reserve Bank has cut the Official Cash Rate by 3.25 percent. Short-term mortgage rates have been cut, but not by this much."We would hope that the electricity industry does not take advantage of its market position and keep increasing rates, that local authorities realise they need to set rates increases below inflation for a change, that the construction materials industry respond to much weaker demand, that the food industry react to lower international commodity prices with price cuts, that petrol companies keep cutting forecourt prices, that the transport industry pass on fuel price cuts, and that the banks pass on interest rate cuts. "Only then will all these firms be playing their proper role in New Zealand's recovery," Bollard said.Interest.co.nz