Reserve Bank resolve reassuring

Media statement Thursday, September 9, 2009

Reserve Bank resolve reassuring

The Reserve Bank's ongoing commitment to keep downward pressure on business interest rates is most welcome, the Employers and Manufacturers Association (Northern) says.

"The Bank's reconfirmation it will keep the Official Cash Rate at its 40 year low of 2.5 per cent until at least late next year is very reassuring," said Alasdair Thompson, EMA's chief executive.

"We trust our trading banks will recognize the determination in the Bank's position and keep their short term rates low.

"Business appreciates the competition between the trading banks which is evidenced by the ASB lowering its floating rate to 5.75 per cent.

"Short term and floating house mortgage rates are critical for small to medium enterprises (sme's) since most of them borrow at these rates and secure loans over their homes. (Large businesses borrow at bank bill rates plus a margin)

"We accept that at present long term interest rates are not influenced significantly by the OCR but more by the competition for deposits locally and in sourcing funds offshore.

"While business rates are proportionately and historically much higher now than 10 years ago compared to home mortgage rates, which is a concern, we accept that only three to five per cent of all sme's borrow at the business base rate which is 9.85 per cent, plus a margin.

"What we need to see now is evidence the banks are keeping short term house mortgage rates down, and even lowering them further, to lift the confidence of sme's which are dependent on them for their business growth."

ENDS

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