Interest Rates

[tpr2]

An interesting comment made to me last week at my little lending get together and that was that the market (rates) had already factored in the upcoming expected rate drop.

So if that's the case then the signal is that it isn't going to drop by as much as we expect and even if it does don't expect anything to be passed through. hmmmmm not a good look and so therefor raise the rates this week so you can drop them next.

[muppet]

ANZ and NAB have dropped their floating rate to 6.45%.

[muppet]

ANZ National cuts rates after 50 point Reserve Bank move

ANZ National cuts rates after 50 point Reserve Bank move

Updated 11:45AM Thursday Mar 12, 2009

Graphic / Christoph Lukasser

• Bollard announces rate cut

Related links:

• Brian Fallow: Not many rate-cut arrows left in Bollard's quiver
• Interest rates cut to record low 3pc, no more big cuts, says Bollard [Bollard announces rate cut]
• Next rate cut won't be the deepest - Mar 09
• Governor keeps heat on banks over credit - Mar 05
• Brian Fallow: Bollard and Whitehead seek injection - Feb 05
• Brian Fallow: Bollard may be left with blanks - Jan 29
• Mega cut means rate could drop to 2pc, Bollard slashes rate to record low - Jan 30

New Zealand's biggest retail bank is passing on the full 50 point cut to the Official Cash rate made by the Reserve Bank this morning.
The ANZ National Bank said it was cutting rates across the board, with a 50 point cut for business, farmer and household loans.
Its 'standard variable rate' will be reduced by 0.50 per cent to 6.45 per cent, from 6.95 per cent.
Business overdraft rates for ANZ and The National Bank are falling by 0.50 per cent, as is its variable lending rate for rural customers.
New Zealand's official interest rate has been cut to 3 per cent from 3.5 per cent, and Reserve Bank Governor Alan Bollard has warned that the timing and extent of global recovery remain "highly uncertain".
Today's cut of 50 basis points in the official cash rate (OCR) takes the overall reduction to 525 basis points in little more than six months as the global economy deteriorated rapidly.
But Bollard indicated that the days of big cuts to the OCR were now over.

Dr Bollard speaking to the media on a Reserve Bank webcast today.

"As economic activity troughs, we expect the rapid easing of monetary policy to slow," he said today.
"Any future cuts will be much smaller than observed recently. We do not expect to see in New Zealand the near-zero policy rates of some countries. New Zealand needs to retain competitiveness in the international capital markets.
"We will assess the need for further cuts in the OCR against emerging developments in the global and domestic economies and the responses to policy changes already in place," Bollard said.
ANZ National Bank chief executive Graham Hodges said the conditions in the wholesale money markets "remain challenging resulting in significantly increased funding costs for banks and we are no different."
"However we also appreciate that New Zealand households, farmers and business owners are facing similar challenges as a result of the current market downturn."
"As well as reducing lending rates we're committed to keeping capital flowing through the business and rural sector."
Westpac New Zealand said the 50 basis point drop in the OCR was what it had expected and that customers would benefit with a 0.4 per cent cut to Westpac's floating mortgage rate (to 6.49 per cent) becoming effective for its customers on March 19 - a change which was actually announced a month earlier.
At the same time Westpac reduced its six-month fixed rate to 5.79 per cent from 5.99 per cent.
Westpac said it was still reviewing other rates, but said significant cuts to fixed term mortgage rates were unlikely because the expectation of today's cuts had already been included in its calculations.
BNZ announced it was passing on the full rate cut for agribusiness overdrafts and business overdraft and variable rates.
"Matching today's OCR cut signals our continued support for our client base through what are clearly challenging times," said Craig Haycock, general manager of BNZ Partners in a statement.
Retail banks have been copping flak from some industry lobbyists, particularly Federated Farmers, for allegedly being slower to pass on rate cuts to farmers and other businesses, than to households with mortgages.
Haycock said the bank was also signalling that it had a strong appetite for quality "new-to-bank" business.
- HERALD ONLINE/NZPA

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10561319

[Monkeyboy]

*NEWSFLASH*

ANZ 3 month rate - 5.65%

[watchful]

I personally think ASB acted too soon dropping their 5 year rates two weeks ago and subsequently raising them over many of their competitors. I think their strategy of trying to secure new business for 5 year terms is sound, however the timing was way out. Up until today, the announcements from the RBNZ did little to suggest that interest rate cuts would not continue to be substantial or that cuts would continue to very low levels if needed. I believe ASB made an error expecting that many would fix when sentiment at that time was that we could all enjoy much lower rates tomorrow. With the uncertainty regarding future rate drops and probable hikes, I believe that today would've been a better time to adopt a discount long term rates strategy in the attempt to regain market share.

To emphasise this, how many of you (after today's announcement) would lock in with ASB at 6 or 6.25% for 5 years if offered that rate?

[SmallBrain]

Up until today, the announcements from the RBNZ did little to suggest that interest rate cuts would not continue to be substantial or that cuts would continue to very low levels if needed.

I think the RBNZ had suggested that cuts would be less aggressive... see my earlier post almost a month ago:

It's almost certain that the OCR will not drop to 1%, unless the RBNZ wants to collapse the NZD. The deputy governor of RBNZ has recently conceded that monetary policy is running out of puff globally. Could be a hint that they would be scaling back the recent aggressiveness.

My bet is the next OCR review will be conservative, likely a cut between 50 to 100 basis points, and I lean toward 50, bringing the OCR to 3%. The OCR could even stay at 3% for most of the year, allowing a bit of ammo left for the RBNZ to use later this year and in 2010.

[Jabroni01]

I personally think ASB acted too soon dropping their 5 year rates two weeks ago and subsequently raising them over many of their competitors. I think their strategy of trying to secure new business for 5 year terms is sound, however the timing was way out. Up until today, the announcements from the RBNZ did little to suggest that interest rate cuts would not continue to be substantial or that cuts would continue to very low levels if needed. I believe ASB made an error expecting that many would fix when sentiment at that time was that we could all enjoy much lower rates tomorrow. With the uncertainty regarding future rate drops and probable hikes, I believe that today would've been a better time to adopt a discount long term rates strategy in the attempt to regain market share.

To emphasise this, how many of you (after today's announcement) would lock in with ASB at 6 or 6.25% for 5 years if offered that rate?

I'm currently with ASB and would jump at the 6 - 6.25% rate of offered today. But I am seriously thinking about moving to another bank seeing how they have priced themselves of late with the 5 year rate.

Jabs

[watchful]

I think the RBNZ had suggested that cuts would be less aggressive... see my earlier post almost a month ago:

A very good pick SmallBrain. I will be interested to see what the RBA's next announcement will be.

Just a thought. What does everyone think is running through the minds of first home buyers who have been waiting for rates to bottom-out before taking the plunge?

Is this announcement a pre-cursor an aggressive era (maybe short term) of buyer fuelled price rises? If so, a 5 year rate bank war could be on the cards.

Thoughts?

[Monkeyboy]

I'm going for the 3 month rate with ANZ. That way I get to see at least another OCR announcement. And then I'll make up my mind to suit. It is not clear to me yet that the banks will raise their long term rates until there is a clear indication of no more OCR drops.

[Green Fish]

A message to first-home buyers

(1) Ignore interest rates.

(2) The issue, as it has always been, is the purchase price.

[shanecarruthers]

I think the long term rates are now at the lowest they will be, so my strategy will be to float mortgages for another couple of months then fix for 5 years.

Shane lives at www.nexusproperty.co.nz
Great property deals, high cashflow and great equity.

[watchful]

I'm going for the 3 month rate with ANZ. That way I get to see at least another OCR announcement. And then I'll make up my mind to suit. It is not clear to me yet that the banks will raise their long term rates until there is a clear indication of no more OCR drops.

Could be a good strategy, however you should be able to secure 5.95% floating from your bank with standard 0.5% floating rate discount.

If you locked in at 5.75% for 3 months and (hypothetically) rates dramatically increased next week, am right in stating that there would be no break charge (if you elected to break and sign at say a 7% 5-year rate) as you are locking in at a higher rate?

[Green Fish]

Crikey!

If you pay too much for a widget, then you have paid too much.

100 years finance at zero percent has no effect on that basic fact.

[watchful]

If you pay too much for a widget, then you have paid too much.

100 years finance at zero percent has no effect on that basic fact.

How do you define paying too much?

Most properties sold (excl tenders and PBN etc) leave a fairly transparent price and hence demand trail.

At auction a flurry of interest wavered at 350K, you buy at 351K. Demand was high and someone else was willing to pay 350K for it - did you pay too much?

At an open home you ask the agent if there have been any offers on a property - she says yes at 350K. You ask about the terms was it unconditional etc. She says no, you offer 351K and buy it. Again someone else is willing to pay 350K - did you pay too much?

A property is only worth (value) what someone is willing to pay for it. This treads well beyond the simple economics of any decision (especially to non PIers), or whether we or anyone else believe the price is too high.

IMO that is a downside when considering PI in areas commonly targeted by PIers. Often a decision is made on an economic basis - CF+, high yield etc yet the purchaser then haggles and secures a low purchase price which further devalues the area. Why, because in many such areas the PI does not choose to live there him/herself and is therefore not desirable to them as a place to live - 'you don't need to live there' mentality that means that the sort of person that you need to market the property to, when you need to sell, is someone like yourself - looking for a good deal.

My thoughts, better to buy quality where many want to live with good features and where emotion will play a part in any subsequent purchasing decision of prospective buyers or renting decision of prospective tenants.

[muppet]

OCR cut sees little change in bank rates

OCR cut sees little change in bank rates

By DAVID HARGREAVES and ADRIAN CHANG - BusinessDay Last updated 15:40 12/03/2009



Richard Baron / Businessday
Dr Bollard cut New Zealand's OCR by 50 basis points today.




Homeowners are not so far being offered much immediate relief on mortgage rates after the Reserve Bank this morning trimmed official rates from 3.5 per cent to a record low 3 per cent.
Only two banks - the ANZ and National Bank - have so far moved on mortgage rates, but their only significant changes have been to their floating rates.
Business and rural rates, which have been seen as lagging the falls in mortgage rates, have been in greater focus so far. ANZ, National and BNZ have all trimmed their rural and business lending rates by 0.5 per cent. Westpac has moved on credit card rates.
Economists had expected Reserve Bank Governor Alan Bollard to cut somewhere between half a percentage point and 1 percentage point.
The kiwi dollar continued to post steady gains against the major currencies in afternoon trading after the smaller than expected rate cut.
Against the greenback, the Kiwi was settled at US51.25c in the afternoon session, after breaking the US51.30 ceiling briefly. The New Zealand dollar was buying US50.58 prior to the OCR announcement.
The New Zealand dollar last traded at 78.89c against the Australian dollar, up from 77.97c Australian this morning.

The final size of the cut was, however, seen as being on the small side and was a mild surprise.

Perhaps because of this element of surprise, there were no quick moves on rates by the banks as there had been after the last official rate cut in January.

The ANZ and the National Bank both cut their floating mortgage rates to 6.45 per cent from 6.95 percent.

This is still, however, above the market leading 5.99 percent rate being offered by Kiwibank. But ANZ is also now offering a three-month fixed rate at 5.65 percent.

Both the ANZ and National Bank have also dropped their business and rural lending rates by 0.5 percent, matching an earlier move by the BNZ.

Westpac New Zealand is reducing the interest rate that applies to purchases on its standard and business credit cards by 0.5 percent to 19.45 percent. It will also lower the rate applied to purchases on its low rate credit card 0.55 percent to 12.95 percent. Today's lighter RBNZ cut, after a 150 basis point cut in January, followed the Reserve Bank of Australia's decision last week to hold that country's rates at 3.25 percent.

But while banks appeared busy still working out what their strategy should be, today's move may still help homeowners in coming weeks and months. According to Reserve Bank figures dating back to 1964 our mortgage rates are now approaching historic lows.

The average floating rate offered by banks was 5.7 percent during three months of 1964 and has not fallen as low since, having risen steadily until 1987 where they peaked at 20.5 percent.

The next closest low period was in 1999 in the aftermath of the Asian Financial Crisis, where the floating rate dipped to 6.4 percent.


As a result of Bollard's smaller than expected cut, economists are now predicting that the final bottom for interest rates might be 2.5 per cent by the middle of this year. Potentially therefore there may not be many more significant falls in mortgage rates.
The RBNZ has been cutting the Official Cash Rate in aggressive fashion since last July when the rate stood at 8.25 per cent.

Bollard has also been putting pressure on the banks to pass on the rate reductions to customers.

Today he turned his focus on to banks' lending to business. "While credit growth is easing in line with the weak economy, we expect financial institutions to continue lending on sound business propositions, to support the recovery," he said.

The central bank's action has been in an effort to breathe life into our economy, which has now been in recession since the start of 2008.

Most economists expect the recession will continue at least till the end of the current quarter.

Bollard said the policy changes by the RBNZ, together with the sizeable exchange rate depreciation, would act to support the New Zealand economy.

"Therefore, we expect to see activity troughing in the middle of this year and then gradually picking up thereafter.

"However, the scale of the global financial crisis is such that there is great uncertainty about future economic developments and there is a risk that the recovery may occur later and be more protracted than we anticipate."

The RBNZ's efforts to get bank interest rates down have had an impact.

According to RBNZ figures for January the average floating mortgage rate for new customers was then 7.04 per cent compared with 10.44 per cent in January 2008.

The one-year fixed rate mortgage average had dropped to 6.17 per cent from 9.78 per cent over the same period.

Our economy was initially knocked into recession by a combination of last summer's drought, the then high interest rates and soaring fuel bills.

While many of those issues have been resolved subsequently, our businesses are now being hit hard by the ongoing effects of the global financial market meltdown that took place in September/October last year.

The combination of lower interest rates and tax cuts is putting more money in many people's pockets and does appear to be starting to have some impact.

February house sale figures from the Real Estate Institute showed a strong recovery in the number of sales from a record low in January.

According to QV, however, prices are still falling - having dropped 8.9 per cent in the past year.

"As economic activity troughs, we expect the rapid easing of monetary policy to slow," Bollard said.

"Any future cuts will be much smaller than observed recently. We do not expect to see in New Zealand the near-zero policy rates of some countries. New Zealand needs to retain competitiveness in the international capital markets.

"We will assess the need for further cuts in the OCR against emerging developments in the global and domestic economies and the responses to policy changes already in place."

http://www.stuff.co.nz/business/2254521/OCR-cut-sees-little-change-in-bank-rates