Govt wants to lower interest rate premium

Last updated 11:23 27/02/2013

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The Government is aiming to reduce the interest rate premium New Zealanders pay on loans, in the final stage in its reforms of the capital markets.

While borrowing rates are the lowest in decades, the gap between the Reserve Bank's Official Cash Rate (currently a historic low of 2.5 per cent), and the actual borrowing rates available to New Zealand households and businesses (the average floating mortgage rate is 5.87 per cent), is higher than in a number of major economies.

A new report, Building Capital Markets, sets a goal of reducing the real interest rate premium on New Zealand debt, compared with the United States and Australia Finance Minister Bill English and Economic Development Minister Steven Joyce said today.

"Several aspects of the New Zealand economy may contribute to our interest rate premium, such as our small capital markets, high indebtedness, exchange rate volatility and low saving relative to investment," they said in a joint statement.

"The actions in this report will improve the functioning of New Zealand's financial system and provide more stable macroeconomic conditions.

"This will help New Zealand businesses by reducing their cost of capital compared to offshore competitors."

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