Banks urged to lift term deposit rates

The Reserve Bank has hinted at banks offering higher interest rates on term deposits to better align the transmission of monetary policy. This comes after observing that term deposit rates have not been passing through wholesale interest rate hikes as effectively as retail mortgage rates. Infometrics principal economist Brad Olsen pointed out that there has been a less significant increase in term deposits compared to the rise in wholesale interest rates.

The Reserve Bank believes that if both retail mortgage rates and term deposits experienced a more equal pass-through of interest rate increases, the signals sent by interest rates would be more balanced. Higher mortgage rates and other lending rates suggest that consumers should spend and invest less than before, while higher savings rates, such as term deposits, signal that more returns can be obtained by saving rather than spending or investing. The main banks have been contacted for their response to these concerns.