Larry Williams: Little's call on interest rates 'mindless'

Labour Party leader Andrew Little. Photo / Ben Fraser, Rotorua Daily Post

Opinion

Listen to Larry Williams on Newstalk ZB, 4pm to 7pm.

Labour took a jump further to the left with Andrew Little's mindless threat of strong-arming and legislating the banks on interest rates.

The brain fades emanating from Little are relentless and are reflected in the polls. Labour is unelectable if they continue with the senselessness.

Labour seem intent to continue with their attack-style radical, irrational politics.

It's a road they seem intent of going down, Labours keynote speaker at its conference next week is Robert Reich, one of America's best-known economic commentators, who has endorsed socialist Bernie Sanders. You can see where Labour wants to go. It's certainly not the mainstream.

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On the banks, it's fashionable to demonise the banks and Little thinks he's onto a winner, but his threat to "stiff arm" the banks and legislate if Labour gets into government is far left political thinking.

Little is "out to lunch" on how the banks are funded.

Yes, the banks margins have increased by four basis points - from 2.24 per cent to 2.8 per cent in 2015 but that number is negligible, it's at the margins.

Banks have more risk and they have a Reserve Bank requirement to hold more capital. The uncertain global financial markets have pushed up wholesale funding costs which the banks rely on.

David Tripe, an associate professor at Massey University, said "the decision not to pass on the full cut was a reflection of the upward pressure banks were feeling in their funding costs."

Without the cut, banks may have had to increase their rates, putting more pressure on borrowers. In other words, just because there is a cut to the OCR does not automatically reduce the banks' cost of funds.

Little sees the banks as easy pickings but it's yet more "on the hoof" policy that lacks substance.

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