David Cunliffe

An inquiry into bank interest rates has been blocked by Government MPs on Parliament's Finance and Expenditure Committee.

Labour and Green MPs on the committee supported an inquiry and say that until recently it seemed to have backing from Government members on the committee.

Labour Finance spokesman David Cunliffe says New Zealanders were looking to Parliament to answer questions as to why interest rates, especially floating rates, seemed to lag behind cuts in the Official Cash Rate.

"Bizarrely, National, ACT and Maori Party, voted against our committee's inquiry after every indication that this would proceed," David Cunliffe said.

"Thousands of New Zealand homeowners, businesses, farmers and exporters have every reason to ask why Parliament's watchdog on the economy is by a majority vote choosing to stay muzzled.

"They are paying too much for their mortgages and business loans and they've now been denied the opportunity to find out why in a Parliamentary forum."

Other Labour committee members also criticised National's FEC members today.

Brendon Burns, says he was at a public meeting in Christchurch last month when John Key said the banks could cut their interest rates if they tried a bit harder.

"So there was implicit support at the highest level for some scrutiny of the banks. Then Bill English started defending the banks in Parliament. When asked, he confirmed that the banks had been to see him," Brendon Burns said.

Revenue spokesman Stuart Nash says an inquiry into bank interest rates could have provided banks with a real opportunity to answer growing public disquiet about whether current interest rates are appropriate.

"At the moment, there is a strong perception that banks have been keeping profits high while provisioning for bad lending - and that Kiwis are paying the price for this," Stuart Nash said.

Raymond Huo says the numbers may have stacked the right way for the banks on the Finance committee but the Labour members are determined to keep asking questions.

"We get to talk to the Reserve Bank on a regular basis so we will continue pressing to see if the banks are playing fair with interest rates," Raymond Huo said.