BANKERS HOPE DROP IN KEY INTEREST RATES WILL SPUR ECONOMY

A drop in key interest rates will do little to stimulate the nation's sagging economy until consumers begin to spend more, local bank officials said Thursday.

"There's just a lot of money around and nobody seems to want to borrow it," said Charles Daniel, president of Capital Bank of Cape Girardeau.

Consumers are playing it safe right now, Daniel said. They are postponing major purchases and continuing to overlook sliding interest rates.

On Wednesday, the Federal Reserve pushed back the discount rate it offers to banks from 5 percent to 4.5 percent, the lowest level since 1973. Banks followed by dropping their prime lending rates. It was part of a government effort to spur the economy and sidetrack another slide into recession.

While the lower rates have a positive psychological affect on consumers, they are still apprehensive.

"I don't think it's going to have an immediate or significant long-term affect," Daniel said.

Ollie Miller, president of Mercantile Bank, said lower rates may give people a better sense of economic security, but it also means investors will see a lower return.

"People who depend on interest income to supplement their other income will earn less," Miller said. The interest rates on savings accounts and certificates of deposit are lower than they have been in years, he said.

"We estimate investment income has been cut anywhere from 25 to 40 percent over the last seven or eight years because of lower rates," he said.

Percy Houston, president of Southeast Missouri Bank in Cape Girardeau, said drops in lending rates likely won't provoke massive spending, at least locally.

"I don't see the market being rate-driven that much," Houston said. "It's going to take public confidence.

"People are still apprehensive about the fact that the government doesn't live within its budget. People are scared by that, and they're holding on to their money."

Lending rates locally have been falling for months. Home buyers can secure fixed-rate mortgages at 8 to 9 percent. Rates for other types of loans have also been on a downward slide.

But so far, Houston said, he has not seen the local real estate market grow as a result.

"I'm surprised that the lower rates have not spurred the real estate market locally," he said. "But I haven't seen that."

Carl Blanchard, president of Coldwell-Banker Blanchard Realtors Inc. and current president of the local board of realtors, said while homes are selling at a rate above that of last year's, they haven't been particularly good.

The lower rates may help, he said, but they come at a time of low sales during any year.

"The rates are obviously very attractive," Blanchard said. "However, it's coming at a rather bad time of the year for home purchases. This particular quarter is a bad one to experience these low rates even though they are very, very attractive."

From now until January, only people who are really motivated to sell, or are relocating because of a job are likely to put their homes on the market, he said.

Lower rates may induce consumers to refinance their homes, but that won't help the economy.

Blanchard said the announcement of lower rates often causes consumers to "keep one eye on the market and one on rates.

"It causes them to wait and see if that's as low as it's going to go."

Just because the rates are low doesn't mean the market is flooded with buyers, at least for residential purchases, he said. Commercial purchases routinely jump in December and January.

David Shell, real estate loan officer at Boatmen's Bank, said he's hopeful the lower rates will directly influence local home sales.

"It would be good for Cape and good for the industry in Cape," he said. "From a rate standpoint, it's a good time to purchase."

Regardless of low rates or market sags, Blanchard said real estate is still stronger than it was last year at this time, when consumers locally were concerned not only about the crisis in the Persian Gulf, but had a Dec. 3 earthquake scare looming over their heads.

"The earthquake (prediction) was the biggest, most devastating factor we have ever experienced," Blanchard said. "Frankly, it really hurt our market."