Interest Rates

[outspoken]

IS that why the NZ $ has been climbing today?

Kiwi's been climbing because of better than expected #'s from the Business confidence survey, thus expecting a conservative small cut by RBNZ.

[drelly]

OCR reduced to 2.5 percent

The Reserve Bank today reduced the Official Cash Rate (OCR) by 50 basis points to 2.5 percent.

Reserve Bank Governor Alan Bollard said: "Overall, developments since March point to lower medium-term inflation than previously projected. The main factors behind this are weaker global growth, and an unwarranted tightening in financial conditions via both higher long-term interest rates and a stronger exchange rate than expected.

"Global financial markets have showed some tentative signs of stabilisation since the March Monetary Policy Statement and governments in the major economies are continuing to make progress in resolving their banking system difficulties. However, a large amount still needs to be done and sentiment remains fragile. Negative feedback from the global recession could also still adversely affect financial institutions.

"The world economy deteriorated further than expected in the first quarter of 2009. While monetary and fiscal policy responses in many countries have been substantial and there are some signs of stabilisation in some countries, we still expect the adverse economic forces generated by the crisis to remain dominant throughout 2009. The timing and extent of global recovery remain highly uncertain.

"While the New Zealand economy has not experienced the same extreme falls in economic activity as seen in a number of our trading partners, it remains weak. Business sentiment is low, investment has been curtailed and employment reduced.

"We expect the large decline in the OCR over the past year to pass through to more borrowers over coming quarters as existing fixed-rate mortgages come up for re-pricing. This, together with the stimulus from fiscal policy, will act to support the New Zealand economy and eventually see activity trough and pick up thereafter. However, the scale of the global financial crisis and domestic adjustments underway are such that it is likely to be some time before economic activity returns to robust and healthy levels.

"We consider it appropriate to provide further policy stimulus to the economy. We expect to keep the OCR at or below the current level through until the latter part of 2010. The OCR could still move modestly lower over the coming quarters."

[Badger]

The powers that be will be waiting eons for *normal robust growth*

Looks like NZGovernment hasn't figured out that resources have not magically turned up no matter what the RBNZ does with Keynsian theory and interest rates for the schemes of granduer proposed.

Seems Bollard, Key and English have trouble between distinguishing the fantasy economy and the *real* economy as Adam Smith penned about!

[muppet]

Anne Gibson: Bollard, how low can you go?

9:00AM Thursday Apr 30, 2009



New Zealand Herald property editor Anne Gibson writes on today's cut to the Official Cash Rate:
Limbo down, now! How low can you go?
Interest rates are jigging down quite nicely to a type of dance as Alan Bollard's pole-lowering moves were ramped up a notch this morning.
But his dive for the ground is not exactly firing up the fairly pitiful state of our housing market. Why?
Job security, people's confidence in their own financial well-being, the outlook for our future and the sheer guts and determination it takes to step into what appears to be an ever-falling housing market - these are just some of the factors which are driving people to stay out of the market regardless of what interest rates do.
Annual house sales for the year might be 50,000 or 70,000 but nowhere near the decade's high of about 100,000 _ and price drops invariably follow volume falls.
Economist opinion about where house prices will head ranges from those who have been resoundingly bullish about the housing market (particularly BNZ's Tony Alexander) to our single saddest doom-sayer (Gareth Morgan, about to endure another cheerful Wellington winter).

Now, they all pretty much singing the same song right now: there's room for house prices to fall further.
So just how low could prices go, if the limbo rock is to continue?
Morgan was on National Radio's Panel this month singing his usual woeful tune a 30 per cent fall.
Alexander said in last week's commentary that there was scope for house prices to "edge down a tad further" and cited QV's latest figures. "Compared with the peak in the house price cycle a year earlier, average NZ house price have declined by 8.9 per cent.
Over the same period of time they have declined 18.6 per cent in the United States and approximately 18 per cent in the United Kingdom," he said.
The late Mark Thompson used to run Barfoot & Thompson from a fairly rough office around Fort St and passed away well before his time.
He had a cartoon on his wall depicting a sad- looking man sitting in the gutter. The caption read The man who waited for house prices to fall.
That message was fair enough about a decade ago when riches seemed in everyone's reach through the housing market.
This week, in a new twist on housing extreme makeovers, Hugh Pavletich of Christchurch sent me a link to the Americans demolishing new Californian houses because vacant lots are worth more than housing estates no one wants to buy.
Would we now have the courage to parody the plight of desperate kiwis who bought at the peak on 110 per cent finance? These days, they are more likely to be meeting with the swelling numbers at banking and real estate offices who specialise in mortgagee sales than gloating about their path to new riches.
The housing market's inglorious finale is certainly not being saved by limbo-low interest rates.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10569345

[Monkeyboy]

Westpac 6 months down to 5.39%

First ones to move.

[ActionMan]

Benard Hickeys comment

It looks like that Allan Bollard is trying to influence the longer term interest rates by not only dropping in the interest rates but the statement that the OCR will be low till late 2010.

http://blogs.nzherald.co.nz/blog/show-me-money/2009/4/30/ocr-announcement/?c_id=3&objectid=10569537

[muppet]

Interest rates cut, will stay low till 2010

Updated 10:11AM Thursday Apr 30, 2009

Graphic / Christoph Luk

Reserve Bank governor Alan Bollard has cut official interest rates again, this morning taking a full half of one percent off the official cash rate.
Since January this year the OCR has been the lowest in its 10 year history and today's cut takes it from 3 per cent to a new record low.
Economists and the financial markets have been in two minds, about whether Bollard would cut the OCR by 25 or 50 basis points.
"Overall, developments since March point to lower medium-term inflation than previously projected. The main factors behind this are weaker global growth, and an unwarranted tightening in financial conditions via both higher long-term interest rates and a stronger exchange rate than expected," said Bollard this morning.
Westpac Bank has moved quickly in response to the OCR cut, saying it was cutting its 6 month home loan rates by 0.4 per cent.
This brings its 6 month home loan rate to 5.39 per cent, due to come into effect this Friday.
The New Zealand dollar plunged nearly US1c immediately after the OCR announcement from US57.34c to US$56.46c before recovering slightly.
Reserve Bank governor Alan Bollard said this morning that global financial markets had "showed some tentative signs of stabilisation" since March and governments in the major economies were continuing to make progress in resolving their banking system difficulties.
"However, a large amount still needs to be done and sentiment remains fragile. Negative feedback from the global recession could also still adversely affect financial institutions," he said.
"The world economy deteriorated further than expected in the first quarter of 2009. While monetary and fiscal policy responses in many countries have been substantial and there are some signs of stabilisation in some countries, we still expect the adverse economic forces generated by the crisis to remain dominant throughout 2009. The timing and extent of global recovery remain highly uncertain.
"While the New Zealand economy has not experienced the same extreme falls in economic activity as seen in a number of our trading partners, it remains weak. Business sentiment is low, investment has been curtailed and employment reduced."
"We consider it appropriate to provide further policy stimulus to the economy. We expect to keep the OCR at or below the current level through until the latter part of 2010. The OCR could still move modestly lower over the coming quarters."
ASB chief economist Nick Tuffley said content of the statement "delivered no surprises."
The Reserve Bank had become "more vague on the timing of recovery", said Tuffley, and also less confident about the strength of any recovery when it comes.
"In explicitly promising to hold the OCR at or below current levels until the second half of 2010, the Reserve Bank will contain longer-term interest rate expectations and prevent an unnecessary tightening in monetary conditions before the economic recovery has found its feet."
"In addition, signalling that further rate cuts are possible will mitigate the rush of borrowers looking to fix rates, and prevent a repeat of late March/ Early April."
Tuffley said the message for borrowers remained that there was "no real hurry to fix rates", since the door on very low long-term interest rates had "slammed firmly shut a month ago."
The could be some scope in the future for lower long term rates over time, depending on the lasting impact of the Reserve Bank's actions and whether the lift in global long-term rates also abated said Tuffley.
"But certainly there is no hurry at present to fix. The choice of fixing vs floating will remain a trade-off between the certainty of fixed rates and the low debt-servicing costs in the immediate future of floating rates. The Reserve Bank has today given a little more certainty over how long the benefits of floating rate debt will be sustained."
UBS economist Robin Clements said it was notable that little attention was given in Bollard's statement to domestic 'green shoots' of recovery.
"Despite improvements in business and consumer confidence (and signs that housing may be reaching a trough), the levels of both remain well below historical averages i.e. as the Reserve Bank notes 'Business sentiment is low, investment has been curtailed and employment reduced'"
"This clear and decisive message is in line with our view that today's cut will be followed by a couple of 25 basis point moves, taking the OCR to a low of 2 per cent."
Clements said he expected this OCR rate of 2 per cent to prevail until the middle of next year and may only move about the current level in the third quarter of 2010.
Bernard Doyle, strategist at Goldman Sachs JBWere said this morning's cut was "at the dovish end" of the options open to the Reserve Bank.
The key phrase from Bollard's statement was the reference to keeping the rate "at this level or lower through until the latter part of 2010."
"Despite the turn in leading indicators, the Reserve Bank is clearly not convinced this signals a sharp turn in the cycle - something we concur with: "However, the scale of the global financial crisis and domestic adjustments underway are such that it is likely to be some time before economic activity returns to robust and healthy levels," said Doyle.
"Overall, we see the cut and accompanying comments as appropriate - particularly in conditioning investors and households for a muted recovery if and when it arrives. However given the turn in leading indicators here and abroad, we doubt further cuts will be required," said Doyle.
"We would also be surprised if the OCR is still at 2.50 per cent by the end of next year."
HERALD ONLINE/AGENCIES

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10569334&pnum=0

[muppet]

Westpc cuts mortgage rates, but leaves floating unchanged

New 2:12PM Tuesday May 12, 2009


Westpac has lowered its one year, 18 month, and two year mortgage rates, effective from tomorrow morning, but has again left its variable rate unchanged despite the 50 basis point cut in the Official Cash Rate on April 30.
Westpac's one year rate will be reduced by 30 basis points (bps) to 5.40 per cent; the 18 month rate by 21 bps to 5.89 per cent; and the two year rate by 10 bps to 6.25 per cent.
Two weeks ago, following the cut in the Official Cash Rate to 2.5 per cent by the Reserve Bank, Westpac cut its six month mortgage rate by 40 bps to 5.39 per cent.
Westpac reported last week that its net interest margins had increased to 225 basis points in the six months to March 31 from 216 basis points in the six months to the end of September, meaning it may have had a bit more room to cut rates than other banks in New Zealand, which have argued that higher international funding costs are stopping them from cutting mortgage rates. Term deposit rates have been largely left unchanged.
As of yet, no bank has cut a variable mortgage rate following the OCR cut. Last Thursday, ANZ National cut its six month rate by 34 bps to 5.45 per cent, and its one year rate by 29 bps to 5.50 per cent.

TSB announced on Tuesday morning it was cutting its six month mortgage rate by 35 bps to 5.64 per cent, and its one year rate by 9 bps to 5.70 per cent. SBS also cut six month and one year rates by 29 bps to 5.50 per cent and 7 bps to 5.70 per cent, respectively.
Meanwhile, building society CBS Canterbury increased its two and three year mortgage rates by 15 bps to 6.40 per cent and 6.95 per cent, respectively.

- INTEREST.CO.NZ

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10571865

[markw1]

Fix now boys, Does not look like long term rates will come down any more!

[tpr2]

Variable for me at the moment.

[markw1]

WHY RATES ARE NOT TUMBLING FROM STUFF.CO.NZ

OPINION Many people will be wondering why it is that the Reserve Bank can cut its official cash rate 0.5 percent yet banks only cut their interest rates by tiny amounts.
In fact the only cuts registered have been for the likes of six month fixed rates with no major bank cutting floating rates.
There are two reasons.
The first is the thing that many months ago rendered continual cuts in interest rates overseas useless.
It now costs us banks far more to borrow money than in the past because of the huge losses racked up by the Northern Hemisphere banks.
This means for instance, as we have noted many times before, whereas we used to pay a premium to offshore investors about 0.1 percent above the bank bill yields and swap rates you might see, now we pay premiums near 2.5 percent.
This means that as old funding rolls off it gets replaced with much more expensive money.
If at the same time as this old money is rolling over the central bank cuts its cash rate the cost to a bank of funding its lending may not go down.
This is why in the United States, even though the Fed has cut its cash rate 5.25 percent, mortgage interest rates have only fallen 1.0 percent to 1.5 percent.
This first factor helps explain why floating rates aren’t falling now and a large gap exists between swap rates and fixed lending rates.
The second factor is the improving outlook for world growth stemming from the green shoots appearing both overseas and offshore.
As the world growth outlook becomes less bad investors move funds into shares.
Where does the money come from? Cash and fixed interest investments.
This means fewer funds available to borrow, which pushes up wholesale interest rates.
In addition, as people now speak about world growth resuming from late this year expectations are building of central banks removing low interest rates from some point in late-2010.
This means investors lending to a borrower at a fixed rate must allow for the lost opportunity created by short term rates rising during the term of their loan.
So they lift what they need to get before lending to the likes of ourselves.
An analogy to describe this is the following: Imagine you are flying a kite on a sloping ground. You are the official cash rate, the kite is a 15 year fixed rate, and the string represents longer and longer terms to maturity of fixed rate loans. If the Reserve Bank cuts the cash rate you walk down the hill and all interest rates fall. But if at the same time you walk down the hill the wind behind you picks up then the kite can settle higher than it was before the official rate cut. These winds represent the outlook for growth, borrower demand, and investor supply.
And so it is that since our central bank cut its cash rate 0.5 percent the ten year swap rate upon which premiums get applied to derive the cost of funds to us banks has risen – that’s right gone up – 0.5 percent.
The five year rate is up 0.3 percent, two year 0.25 percent, and one year 0.15 percent.
Only the person flying the kite is at a lower rate and the fixed rates closest to that rate – out to about six months at most.
Where are things going now?
Our monthly BNZ Confidence Survey has just revealed an equal record level of business sentiment not seen since the early part of September last year.
The green shoots are multiplying both here and offshore.
This easily explains why the NZD has risen back above US60 cents and why fixed home and business lending rates face a greater risk of rising than falling over the coming month or two.
Hence our stark comment in my Weekly Overview of March 19 to – back then – fix now.
I would make the same comment again even though these fixed rates are higher.
Would I float? Hardly – the rate is 1.0 percent above the one year fixed rate.
I would either fix one year if I otherwise would float, or three years now if my plan is to fix.

*Tony Alexander is BNZ's chief economist.

[muppet]

Banks announce cuts in mortgage rates

9:30AM Thursday May 14, 2009

This morning sees some reductions to fixed-term mortgage rates - but not by very much.
Kiwibank announced today it was cutting its six month and one year mortgage rates by 34 and 10 basis points (bps), respectively.
Kiwibank's new standard six month rate will be 5.45 per cent and its standard one year rate 5.59 per cent.
The changes come following comments by Reserve Bank Deputy Governor Grant Spencer that the RBNZ was disappointed banks had not yet passed on the April 30 Official Cash Rate cut to variable mortgage rates.
Still, no bank has cut its variable rate since the 50 bps cut in the OCR. Kiwibank is currently offering the lowest bank variable rate at 5.99 per cent.
Also this morning, AMP cut its six month and one year mortgage rates by 29 and 19 bps, respectively. Its new standard six month rate will be 5.50 per cent, and new standard one year rate 5.60 per cent.
SBS also cut its one year mortgage rate for the second time in the week, today cutting by 20 bps to 5.50 per cent. It had earlier cut the rate from 5.79 per cent to 5.70 per cent.
- INTEREST.CO.NZ.

[mortgage broker]

Its so good to see Kiwi Bank catching up to the drops already made by some of the aussie banks our reserve bank governor must be so proud.

[Matt Gilligan]

I wreckon this is the best http://www.interest.co.nz/mortgages.asp

[mortgage broker]

Still not a good comparison tool, I have one bank offering to do 5.20% for one year for clients this week, well below the website.