Banks should not expect to continue to make large profits when taxpayers are taking on their business risk, Finance Minister Bill English said today.
Following rises in many fixed-term mortgage rates in the past few weeks, including an increase from about 6.5 per cent to 7.5 per cent in five-year
rates, Reserve Bank Governor Alan Bollard took the unusual step of issuing an unscheduled statement yesterday.
He expressed concern at a recent rise in long term wholesale interest rates and reminded everyone the Reserve Bank was projecting interest rates will remain at "relatively low levels for an extended period".
Mr English told journalists that Dr Bollard was making his own independent commentary about interest rates and it was possible banks were reacting to the market to some extent.
"I hope they realise though, with the taxpayer guaranteeing all the deposits and guaranteeing their borrowing overseas, that they can't expect to make the same kind of margins that they made when they were taking all the risk," Mr English said.
"Now the taxpayer is taking quite a lot of the risk, and they should be expecting to make lower returns."
Mr English continued to warn off ongoing economic turmoil.
"The events we've seen are a bit unexpected with the dollar going back up and interest rates going up when we're still in the bottom of a pretty solid recession.
"We are going to have volatility, uncertainty, it's a long road to recovery. We would hope that the dollar and the interest rates are not going to make that harder."
In Parliament, Mr English continued to beat the drum that long-term forecast debt levels were unacceptable.
He told Labour MPs who complained about the Government prioritising spending they should "get real" and take a look at the economic climate.
Mr English has said repeatedly that spending will have to be shuffled from "low quality" programmes to those that met the new Government's priorities, he was reassessing the wisdom of tax cuts legislated to take place in 2010 and 2011, as well as considering reducing or suspending payments into the New Zealand Superannuation Fund.
He will deliver his first budget on May 28.
- NZPA
