Interest Rates

[muppet]

So far three of the big five have moved this week. ANZ, ASB, NAT

[Viking]

That's two muppet. Natanz are joined at the funding office.

[eri]

i'd say they are raising rates to try and stop the departure of their term depositors

for every million pulled out under fractional reserve banking they have 5? million less to loan out

did i read that currently nz is in the rare position of having lower official term deposit rates that oz?

with a stronger economy you can imagine that japanese house wives might feel the need to move their retirement funds

[Shane D]

i'd say they are raising rates to try and stop the departure of their term depositors

for every million pulled out under fractional reserve banking they have 5? million less to loan out

did i read that currently nz is in the rare position of having lower official term deposit rates that oz?

with a stronger economy you can imagine that japanese house wives might feel the need to move their retirement funds

eri
But then why is the NZ dollar still rising? If Japanese housewives and other overseas investors were dumping their NZD based investments the NZD would be tanking. Which it obviously isn't.

I think the reason for rates going up is banks around the world are being A LOT more conservative in their lending and are trying build up their cash reserves. They are basically saying of you want to lend money from me its going cost you dearly.

One of the reasons banks overseas are building reserves is they are looking at commercial RE going to custard and looking at the charts that show those crazy ass home mortgages (teaser interest rates that reset after a few years) shooting up between now and 2012.

[Austrokiwi]

eri
But then why is the NZ dollar still rising? If Japanese housewives and other overseas investors were dumping their NZD based investments the NZD would be tanking. Which it obviously isn't.

I don't read anywhere in Eris post anything about Japanese house wives or others dumping their NZ based investments. The closest thing to that Eri stated was; NZ banks are forced to raise interest rates so as to keep NZ investments attractive.

[muppet]

Dollar outlook: Kiwi may gain as US confidence grows

The New Zealand dollar may gain on a trade-weighted basis this week as stronger-than-expected jobs data in the US boosted confidence the world's largest economy is recovering from its deepest recession since World War II.
Six of seven economists and strategists in a BusinessWire survey predict the kiwi will stay in its current range or gain this week on the TWI, a measure of the currency versus the greenback, Australian dollar, yen, euro and pound, as a pick-up in the US economy boosts the prospects of a global recovery. One says it may decline against the basket of currencies.
http://www.nzherald.co.nz/business/n...ectid=10589840

[muppet]

Westpac have also moved upwards overnight.
Only the BNZ to move now.

[orion]

for every million pulled out under fractional reserve banking they have 5? million less to loan out

Hi eri,

No, worse than that. I know this is what Kiwi Bank is and I would imagine all others in NZ would be exactly the same being under the same rules. For every $1 million they have on deposit, they can lend out (to all of us borrowers) $28.6 million (and of course charge interest on it). That is if that lending is under 80%. However for any money they lend out over 80%, they can lend out a lesser amount which is $14.25 million. So, it is in the banks' interest to have loans at under the 80% level so they can lend out more money.

Regards
Graeme Fowler

[muppet]

Westpac, SBS follow suit and raise mortgage rates

11:47AM Tuesday Aug 11, 2009
Westpac and SBS Bank have followed ASB, ANZ and National Bank in raising longer term fixed mortgage rates to over 6.5 per cent, despite the Reserve Bank's promise to keep the Official Cash Rate at 2.5 per cent until late next year.
Banks are reacting to a rise in interest rates on wholesale markets and higher rates needed to attract term deposits in New Zealand. The Reserve Bank has been pushing the banks to raise more funds locally to reduce their exposure to a freezing of global financial markets.
Yesterday, an ANZ economist warned that banks were likely to move quickly in raising rates as many borrowers were looking to fix their mortgages before rates rose. Only BNZ out of the big four has yet to move in the latest round of increases, while Kiwibank and TSB have also held out.
Banks have started to fight harder for term deposits in recent months following calls from the Reserve Bank to increase their share of domestic funding which would be putting upward pressure on mortgage rates.
Westpac raised its 18 month rate by 10 bps to 5.99 per cent; its two year rate by 30 bps to 6.55 per cent; three year by 45 bps to 7.40 per cent; four year by 55 bps to 7.95 per cent; and five year by 35 bps to 8.25 per cent.
Also this morning, SBS Bank raised its two year fixed mortgage rate by 20 bps to 6.55 per cent; three year by 46 bps to 7.45 per cent; and five year rate by 30 bps to 8.30 per cent. SBS does not offer a four year fixed rate mortgage term. Last week SBS raised its six month and one year rates by 10 bps.
Interest.co.nz
http://www.nzherald.co.nz/business/n...ectid=10590048

[muppet]

Finally, BNZ have decided to catch up with the rest of the mob.

[muppet]

Kiwibank, BNZ cut floating, raise fixed mortgage rates

11:40AM Thursday Aug 13, 2009


Kiwibank has followed BNZ in cutting its variable mortgage rates while raising fixed rates this morning.
Kiwibank is the last of the regular banks to move in this latest round of fixed rate rises. Kiwibank's variable rate is now the lowest variable rate offered by any New Zealand bank in 40 years.
BNZ and Kiwibank are the only two banks to have lowered their variable rates in the latest round of changes, and this may well put pressure on other banks to revise their previous moves.
Pressure has been placed on the banks by the Reserve Bank and politicians recently to lower their variable mortgage rates.
Kiwibank lowered its standard variable rate by 20 basis points (bps) to 5.79 per cent following BNZ's surprise move to lower its TotalMoney variable rate to 5.85 per cent. Meanwhile, Kiwibank raised its two to five year fixed rates by 30 to 55 bps. Six month and one year rates were unchanged.
Kiwibank's new variable rate looks as if it is the lowest variable rate that has been offered by a bank in New Zealand in more than 40 years, going by RBNZ figures.

Kiwibank Acting Chief Executive Paul Brock said recent comments by the Reserve Bank Governor that the Official Cash Rate is likely to stay at its current level or lower for some time gave it confidence to again cut rates.
"The wholesale markets and deposit rates being offered by banks clearly indicate that in the longer term, rates will rise. But for now we see the opportunity to pass through additional savings on variable rates for our customers," Brock said.
"This gives those home owners with fixed term rates coming due for renewal the opportunity to grab our very competitive variable and short term rates while they consider their options," he said.
"We think that financial commentators will agree that a variable rate of 5.79 per cent is startlingly good value."
Brock noted that customers didn't have to "jump a whole lot of hurdles" to be eligible for Kiwibank's new variable rate, saying it wasn't a special deal and was just a regular rate. "We always want to be the best value among the Aussie banks and we've consistently been there," he said.
BNZ followed other banks in raising fixed mortgage rates by between 30 and 46 bps, but in a surprise move cut its variable rate, putting pressure on state-owned Kiwibank.
BNZ's 'TotalMoney' variable rate is now 5.85 per cent, which was briefly below Kiwibank's previous market-leading rate among banks of 5.99 per cent. Any BNZ customer applying for such a loan must set up a 'TotalMoney' account, which can be used to link with other family accounts to offset mortgage interest with savings interest.
BNZ's new standard variable rate is 6.30 per cent, still above standard variable rates offered by Kiwibank and Bank Direct, but down 6.45 per cent previously.
BNZ raised its 18 month and three to seven year fixed mortgage rates.
AMP Home Loans has also raised two to five year fixed rates by 25 to 46 bps. AMP Home loans' rates are set by Kiwibank, with the state-owned bank's rates typically, but not always, following close behind.
CBS Canterbury also announced fixed mortgage rate changes this morning, raising its three and five year rates by 20 and 15 bps, respectively.
Meanwhile, several banks changed their term deposit rates. Raboplus raised its one and two year deposit rates by 10 and 20 basis points (bps), respectively, but lowered its three, four and five year rates by 5, 10 and 25 bps, respectively.
ASB lowered its nine month term deposit rate from its fighting rate of 4.75 per cent down to 4.40 per cent. Earlier in the week ASB raised its five month term deposit rate to 4.60 per cent, with the action in the currently focused around the four to six month deposit market.
-
www.interest.co.nz
http://www.nzherald.co.nz/business/n...0590518&pnum=0

[muppet]

From this week's email from Tony.

If I Were a Borrower What Would I Do?
Obviously, given what we wrote here back on March 19 I would
already be fixed seven years at 6.79% so would be sleeping very easy
at the moment with people now only able to get a rate lower than that
if they accept a lot of interest rate risk and either float or fix short term
up to two years at 6.5%. The obvious choice for those who are
determined not to fix long is fix 18 months at 5.99% because come the
middle of 2010 there will be some firm worries about increases in the
short term borrowing rates.

Why?

There is something many people may not have got their heads around
when it comes to what has happened over the past few years. First,
over the past couple of decades a view developed that monetary
policy should be used here and overseas to get rid of recessions if at
all possible. That meant at times interest rates would go to unusually
low levels and eventually stoke higher house prices. Going forward
when central banks next feel the need to ease interest rates (a few
years from now) in order to combat economic weakness they will
probably not take them down as far as before. That is an issue for
further out and not really relevant for current borrowers thinking
about what to do.

Second, again over the past couple of decades, a view developed
among central bankers that one should not use monetary policy
(higher interest rates) to combat asset price inflation such as from
soaring house prices. The global credit collapse shows that approach
is wrong and going forward we should expect central banks to more
quickly react to rising asset prices than in the past. That means, if you
happen to have a view that NZ house prices will appreciably rise over
2010-11 you had best factor in upside risk for interest rates. This week
we have seen the first round of increases in fixed housing rates since
the first week of June. The rises have come in response to the rising
wholesale borrowing costs we have long been writing about and mean
that if I were to fix three years now as I have been opting for over the
past few weeks I would pay 7.45%. That rate is still 0.6% below the
average for the past five years but it is becoming too expensive in
comparison with other shorter rates.

So if I were in the position of one of those people who for some
reason have been sitting believing fixed rates will go back now then Id
be forced to accept the risks inherent in not fixing three years or more
and fix two years at 6.5%. But you should have fixed very long term
back in mid-March shouldn't you!

[AndyB]

"But you should have fixed very long term back in mid-March shouldn’t you!"

Not that Tony explicitly recommended it or even suggested it at the time. Giving himself an unwarrranted pat on the back isn't he.

Thanks to some thoughtful people on this site who actually did 'put their money where their mouth is' I got five years at 6.5. All we got from Tony at that time was, 'Oh, it could go this way, it could go that way,' wavering non-committal mumbo jumbo mincey words.
Seriously, if you can find a statement or an analysis within any of his media postings in the last six months whereby he makes a direct suggestion or piece of advice to fix long, then post it here.
I remember his writing about the descrepency between wholesale rates and retail, yet if you can find in there and those like it explicit advice from Tony, whether directed to the professional researcher or to us laymen mortgagees, to fix rates long, I'll eat my beano hat.

What is this self-congradulatory attitude from Tony; Does he think he does such a great service to us?

"That rate is still 0.6% below the average for the past five years but it is becoming too expensive in
comparison with other shorter rates."
And here he is touching on something that is relevant and could be vital to know about, but he doesn't explain it. Typical. He just leaves it in the air before following with an, 'I told you so.'
Well, no you didn't Tony.

[CycleTrader]

AndyB - I thought Tony's newsletter of 19 March was pretty explicit, "FIX NOW." He explained using a mix of 3, 5 and 7 year terms to give flexibility, but was pretty clear that "now" was the time to jump off floating and onto fix due to a combination of factors that had changed in the preceding weeks. Prior to that letter he had been waiting for a fixed rate below 6%, which he then acknowledged wasn't going to happen.

Credit where credit's due I think.

CT

[muppet]

From Tony"s March 19 Newsletter.

If I Were a Borrower What Would I Do?
FIX NOW
And the long version…..
It’s time to fix medium to long term. Over the past few weeks four things have happened to shave the chances of a 5.5% five year fixed rate down to 1% and the chances of a rate less than 6% down to maybe 10%.
1.
Overseas sharemarkets have rallied and this is associated with and causing some movement away from fixed interest assets toward growth assets. That means higher interest rates.
2.
The Reserve Bank last week went to some trouble to point out their reluctance to keep cutting interest rates much further.
3.
Corporate borrowers have been jumping in to take advantage of low fixed rate borrowing costs and fixing for medium to long term periods.
4.
There is little evidence of a return of banks competing aggressively for home lending business with strongly discounted interest rates.
This means that if I were borrowing at the moment I would now hop out of floating and opt for a mixture of periods between three years and seven years.
Choosing a mixture would seem to be a good idea given the inherent volatility in income and ability to make extra mortgage payments for some people, plus the sheer uncertainty of the current and prospective economic environment which suggests spreading one’s interest rate risk involves more than just fixing for one term.
Keep in mind however that the chances of someone fixing now being hit with high break costs somewhere down the track seem reasonably slim. Those costs are incurred when interest rates fall – not when they rise.
Given that I am not going to get the lovely 5.5% - 6.0% five year fixed rate I was hoping for, I would fix one-third of my loan for seven years at 6.79%, one-third at five years for 6.49%, and one-third at three years for 5.99%. If I had a small loan or expected bulk repayment 2-3 years out I would opt for a two or three year rate.
Frankly it is very much a matter of personal choice which mix and match combination one takes. All that really matters for the moment is that the chances of rates falling from current levels are minimal. So given the goal I stated last year for 2009 of picking the time when fixed housing rates would be at their low point, this is almost certainly that time.
Are rates going to now rise quite quickly? That is the new big uncertainty and it depends massively upon what happens with the global economy and its growth/shrinkage expectations over the next few weeks and months. In other words – unclear. Take it as it comes in this uncertain environment.