Reserve Bank governor Alan Bollard should act quickly to provide businesses and households with some further interest rate relief before Christmas, Myles Wealth Management principal Craig Myles said yesterday.
"I don't see any signs of Bollard acting quickly. He is sticking to a scheduled approach but that is not what is happening elsewhere in the world. Central banks around the world are following their set programme of rate reductions but are taking intervening steps on the way through.
"Cutting interest rates further before Christmas is the best thing he can do for households and businesses."
In the United States, Federal Reserve officials yesterday slashed official interest rates to a record low range to help offset a deepening recession.
The Fed also signalled it would keep rates "exceptionally low" in the immediate future.
The Federal Open Market Committee voted unanimously to reduce the target Fed funds rate for interbank lending from 1% to a range of 0% to 0.25%, the lowest since the Fed started publishing the funds target in 1990.
Deutsche Bank officials said the cut showed the Fed wanted to push down mortgage rates.
The US central bank had moved into a new period of "quantitative easing" where it signals to buy agency bonds and agency mortgage-backed securities to push down mortgage rates.
US financial markets responded with share prices rallying and swap rates narrowing.
Dr Bollard had cut the official cash rate by 3.25% this year, taking it down to 5%. Indications were that it could fall to 3% by the middle of next year. However, those reductions were not flowing from retail banks through to the real economy, Mr Myles said in an interview.
Short-term rates, such as overdraft and credit card interest rates were still high at a time when retailers were under pressure and manufacturers were suffering because of a cost of funds.
Dr Bollard needed to keep pressure on the banks to pass on lower interest rates.
"He's made some public comments but hasn't followed through. There is no justification for interest rates at the short end of the market to be pushing 15%."
It was also hard to see the rationale for credit card interest rates to be even higher, he said. The Reserve Bank needed to send the signal that those high rates were unacceptable.
While tax cuts on October 1 had provided some relief for the "mortgage belt", high overdraft and credit card rates were aggravating the current cycle, which relied on increased spending to help the economy grow.
People needed to feel comfortable about spending over the Christmas period to help give some confidence to retailers and manufacturers.
New Zealand was protected from the worst of the global meltdown because the world still wanted this country's commodities. Commodity prices had fallen but so had the dollar.
If interest rates remained higher than the rest of the world, the dollar would bounce back and New Zealand would face more problems, Mr Myles said.
Last week, Dr Bollard called on everyone to play their part in reducing demand and not adding to inflationary pressures in the economy. Further cuts in the bank's official cash rate depended on all sectors in the economy responding to that call.
With substantially lower commodity prices, there was room for further price cuts, he said.
Retail margins could be expected to reflect lower costs and the current tight environment. Retail banks should not be looking to maintain high profit margins in this environment.
"We would hope that the electricity industry does not take advantage of its market position and keep increasing rates, that local authorities realise they need to set rates increases below inflation for a change."
Government-owned Genesis responded to that call by signalling prices rises of up to 9.2% in some parts of Auckland. Prime Minister John Key urged Genesis to reconsider the rise, but conceded at a media briefing that a reversal of the decision was unlikely.
Contact Energy has also come in for criticism recently for raising its prices, with the former Labour-led government promising an inquiry.
