Finance Minister Bill English says he's not concerned most major banks are not passing on any, or all, of last week's interest rate cut.
But an economist says the government needs to start considering alternatives for managing the economy.
Finance Minister Bill English said there was still "some way to go" in terms of interest rate changes. Photo: RNZ / Alexander Robertson
On Thursday, the Reserve Bank cut the OCR from 2.5 percent to a new record low of 2.25 percent, with predictions it could drop to 2 percent later this year.
ANZ, Westpac, BNZ and ASB are yet to lower their mortgage interest rates by an equivalent amount.
Mr English said the banks had to run a business.
"They've got some argument that because of this global volatility we've all been talking about that raising money offshore is a bit more expensive. But that also competitive pressures will bear in on them eventually.
The major banks might still pass on the latest OCR cut, Finance Minister Bill English said.
BERL chief economist Ganesh Nana Photo: Supplied
BERL chief economist Ganesh Nana had accused the banks of playing games by not passing on all of the cut.
He said they were blaming rising overseas funding costs, but questioned the importance of that factor.
"I think it's all a little bit of banks' commentators talking to each other and trying to make a story out of something that's really not that central.
"Like most things, I take most comments from banks with a pinch of salt."
Dr Nana said the Reserve Bank was running out of ammunition to bolster the economy.
Mr English told TVNZ'S Q+A it was up to each bank to be profitable, and he was not too concerned at this point.
"We've, I think, yet to see how the competitive pressures will roll out. I'm not overly concerned, in the sense that there's some way to go.
"They may not have passed it on immediately but I also think the competitive pressures will bear in on them eventually."
Mr English said, ultimately, banks had to answer to their customers.
"If the argument is whether or not we should have banks that are profitable, well they should be. They need to be profitable because when they aren't, things are much worse - as we've seen in other countries.
"They've got to run a business and they'll run it in a way that has to be acceptable to their customers."
Mr English also said the government had no plans to underwrite dairy farmers' growing bank debt.
Interest rates 'constantly' reviewed
A BNZ spokesperson said it considered a range of factors when setting its interest rates.
"The OCR is one of them. Equally, one other consideration is the rising cost of wholesale funds due to a more volatile offshore market."
Regardless, it was a good time for people with home loans, the bank said in a statement.
"We don't have any changes to announce at this stage but we are constantly reviewing interest rates."
On Friday, ASB announced a 0.2 percent cut to its floating rate from later this month and lowered its fixed home rates by various amounts.
ASB executive general manager for retail Ian Park said the reductions provided a competitive option for customers.
Kiwibank also cut its floating rate by 0.2 percent and its fixed rates by various amounts - effective from 14 March for new customers, and 24 March for existing customers.