Bollard blasts high prices
Reserve Bank governor Alan Bollard is putting the boot into banks, oil companies and food firms for not bringing down prices as much as they should.
In an unusual and pointed attack, Dr Bollard also told power companies not to keep pushing up prices and local bodies to start keeping rate rises under the level of inflation.
He said he had not yet called in bank chiefs about lowering interest rates further, but expected to do so soon. "It is something we will raise in discussions with them."
In a speech at the Wellington Chamber of Commerce yesterday, Dr Bollard said more central bank interest rate cuts depended on "all sectors" playing their part and not adding to inflation.
He cut official interest rates by a record 1.5 percentage points to 5 per cent last week, giving a massive fall of 3.25 points since July, but said banks had only partly passed that on.
Despite problems for banks in borrowing from overseas this year, "we have been surprised we have not seen more pass-through". Banks should not expect to keep up their profits in tough times, he said.
Big banks made combined profits of $4.8 billion before tax last year, up 11 per cent, according to a report by accounting firm KPMG.
Petrol prices have fallen by 83 cents a litre since July, but Dr Bollard said he was not sure they had fully reflected falling world prices "in the last few weeks".
Some food prices needed to fall, too. For example, international dairy prices were half the level they were a year ago. "Now that global prices have crashed, there is plenty of room for retail price cuts."
Local councils had "got into the habit of passing on big increases and not thinking too deeply about it", Dr Bollard said. "Rate rises should be well below the rate of inflation this year (and in future).".
The major banks have cut short-term mortgage rates by about 2.8 percentage points since July, not passing on the full benefit of Reserve Bank cuts of 3.25 points. Floating mortgage rates have fallen from just under 11 per cent in the middle of the year to about 8.15 per cent.
Westpac said it had not passed on the full amount because it did not want to reduce deposit rates by a similar rate. Banks also faced higher costs because of the Government's charges for the bank deposit guarantee scheme.
Banks said it also cost more to borrow overseas because of the credit crisis.
Household power prices have risen about 6.6 per cent on average in the past three years.
"We get a picture of an industry that has a relatively easy time and it has not shared the pain," Dr Bollard said.
State-owned power companies made total profits of $446 million in the past year. Sharemarket-listed Contact made a profit of $237 million.
Energy Minister Gerry Brownlee said the Government was in talks with electricity companies and was concerned that "they don't raise prices unduly".
"They are providing reasons why they think their prices should go up. We are continuing to have discussions about the problems they say are leading them to those price rises."
Prices in the retail power sector had risen "in excess of 80 per cent since 2001", he said. "It has to stop somewhere. I think they [power companies] need to consider very carefully what he is saying."
The Dominion Post