The rise in bank loan interest rates is a necessary consequence of monetary policy, he says
There is no evidence suggesting banks are making unreasonable profits as New Zealand families continue to struggle with surging inflation and costs of living, according to Finance Minister Grant Robertson.
Read more: Bank profits swell as homeowners face costlier home loans
The Reserve Bank has been aggressively hiking the OCR in a bid to tame inflation, with the cash rate now at 3.5% and with further hikes to come next year, possibly taking the rate to 5%. The September quarter, meanwhile, saw annual inflation drop to 7.2% and consumer prices rise by 2.2%.
Robertson told Morning Report that bank loan increases, including mortgage rate loans, were triggered by RBNZ’s OCR hikes and that banks’ profits were not excessive.
Read next: Mortgage growth drives record bank profits
New Zealand was in a stronger position than most countries to deal with an economic downturn, the official said, with unemployment and debt levels low.
He also said the increase in bank loan interest rates was a necessary consequence of monetary policy, but that the government was primed to support those who were facing financial hardships.
“The Reserve Bank has a job to bring inflation back down again and the tool they use for that is the official cash [rate],” Robertson told Morning Report. “What the government can continue to do is support people on low and middle incomes, as we have with various initiatives that we’ve put in place over the course of the last year or so. But what the government also has to do is make sure that we’re focused and targeted in our spending and do our bit. But this is a global phenomenon – right around the world people are facing this.”
He said significant rises in mortgage repayments as well as the increase in interest rates on loans did not mean banks were trying to wrest unreasonable profit margins on the back of the RBNZ policy.
“We always ask our retail banks to make sure that they understand the environment they’re operating in, that their customers are operating in,” Robertson said. “They have to have a social licence to operate, and I think any New Zealander would be concerned if they were drawing excessive profits beyond what they need to reasonable margin. Bank profits have been high in New Zealand for a long time, and I think the important thing here is that there isn’t any evidence that there’s a particular set of behaviour right now that’s trying to overly capitalize on this. But they do have significant profits and we would expect them to bear that in mind and bear in mind the situation of the consumers.”
For the three months ended June, the retail bank sector reported a collective $1.7 billion profit, just below the record set in the previous quarter and despite the pressures of a slowing economy, rising interest rates, and inflation, according to Morning Report.
