Hawai'i banks match Fed interest rate cut
| • | Analysts say quarter-point cut part of wait-and-see strategy |
Advertiser Staff and News Services
Hawai'i banks lowered interest rates yesterday to match the Federal Reserve's cut, and Island businesses hope the cheaper money will encourage consumers to buy more.
"If they needed something to push the decision over the cliff, obviously the rate is one of them. It helps," said Cameron Jackson, finance manager at Cutter Dodge Chrysler Plymouth Jeep. Jackson said he was contacted by several banks within hours of the rate cut and was able to offer loans at lower rates immediately.
The Fed cut its key overnight interest rate by a quarter point to 3.75 percent, the lowest since 1994. American Savings Bank, First Hawaiian Bank and Bank of Hawaii followed suit, saying they would cut their prime lending rates from 7.0 to 6.75 percent. The cuts take effect today.
"This is about as good as it gets," said Judy Kalbrener, a realtor at RE/MAX Honolulu. "Interest rates are very, very good."
The rate reduction will save money for many consumers who have home equity loans and other debts, including some credit card balances, that are tied to the prime. Rates will fall on many small-business bank loans for the same reason.
However, in the case of credit card accounts, some lenders set a minimum rate that will be charged on unpaid balances, so reductions in the Fed's target and prime lending rates will not necessarily be passed on.
The impact on mortgage costs is uncertain because the rates charged on new fixed-rate home mortgages vary more with long-term rates determined by market forces than with the Fed's key rate.
"Most lenders are somewhat arbitrarily saying, 'I'm not going to loan money below a certain rate,' — typically a 7 percent floor," said Tim Welch, managing director for financial services at Cushman & Wakefield.
For home buyers it's difficult to watch the Fed cut rates and not want an equivalent drop in their mortgage rates.
"Now people are hoping for 6 percent," said RE/MAX Honolulu's Kalbrener. "I remember when they were 18 percent."
For retailers, the impact from a rate cut may be slow in coming.
Phillip Fong, Liberty House vice president for finance and research, said the level of consumer confidence is hurting retail sales.
If the rate cut convinces businesses to invest and hire more people, that could lead to more buying at department stores like his, Fong said.
