Interest Rates

[Gatekeeper]

Interesting……

What do you think is the motivator?

The banks just got access to some less expensive money to loan out….

Or they are dropping their “per customer margin” in the hope that they gain enough customers to get an “overall margin” increase….due to increased quantity…

Let me just check who is issuing what debt bonds internationally…

Maybe the flight from finance companies, debentures, to safer bank deposits. I read last month that the banks were looking domestically. The two year swap rate was down over the past month, increasing bank margins, so the banks have room to have another rate war (for a while).

[McDuck]

That is what I was sort of thinking...

I suppose there could be billions of dollars worth of local savings scared away from the finance companies.

It might be going into the vaults of the "safer" trading banks..

now.... the flip side of that is, "will interest rates soon go up?" because the banks are competing for a limited internal savings supply...

Ahh! worry about that later....today it's good news, so we dance...

[Gatekeeper]

Don't all those Uridashi's start maturing in Sep06?
Wonder what effect that will have!
Also the Fed sitting on the 18th(?), part of the drop is sentiment that they won't raise again. They will surely?

[Gayle]

Does anybody here dealt with Silver Fern as mortgage finance company? Reputable??

[BarryWilliams]

I was in talking to a broker the other day who in turn had been talking to two separate bank economists, both of whom said that they expected rates to be between 5-6 % by the last quater of 2007....

[McDuck]

I would be interested to hear the reasoning (and current economic trends and indicators) that allow these simple folk to look so far ahead with their crystal balls.

Someone feel free to jump in and correct me…but the current indicators point to New Zealand not being a big attractor of foreign debt investment.

Not because we have done anything wrong…but simply because other counties are doing less wrong than they have previously.

I see that the St George bank of Australia has decided there are no more ways to squeeze profit from the New Zealand loan game.... So they are out of here.

I would love to hear the reasons why your money men have come to this theory.
Any chance of grilling them for a few details?

[BarryWilliams]

I will dig a little deeper with him to find out more of their rationale. One reason tabled was that (depending if you subscribe to the doom & gloomers) was that with increased pressure on the reserve bank rate through to the end of the year, that the housing market was going to hit its predicted massive slowdown, and that in order to kick start a lagging economy the reserve bank would need to adjust the OCR to re-boot things. I guess we also have to factor in what interest rates are doing in the global market to predict whether or not this will be a reality

[spurner]

It's easy to say now that 7.99% looks like a great deal and should be taken, but I too think that in 12 months time 7.99% will look very high, just as it was high 24 months ago when everyone was locking in for 2 years at ~7%.

The only problem is what to do in the interim with a fixed rate mortgage coming up for renewal shortly. Just renew for 6-12 months, pay a premium, and refix for a longer period at a lower rate in 07 perhaps?

[McDuck]

I too think that in 12 months time 7.99% will look very high

I'm a real information hound when it comes to the flow of money.

What sort of events or what numbers give you the idea that interest rates will be low in 07?

Just a wild guess.. or are you looking at some specifics?

[spurner]

No statistics or major news events for me. I do most of my investing and decisions on feelings (not to be confused with emotions!) So most would label it a wild guess, but in 6-12 months we shall see.

In the past I locked in alot of money for 5 years at 8.95% when that rate looked really attractive. A short while later I was losing out big time, and since then decided never to lock in for a long period unless it was 7-7.5%. In that case mentioned I did pay a hefty fee to break the term, just before the rates went down even further, which did lessen the impact somewhat.

Seriously though, I have $3.5m of mortgages expiring in October and am still undecided what to do, probably leaning towards a shorter term higher rate until they drop back again in 07.

I don't like the idea of interest rate averaging either, can only bring about average results.

I'm a real information hound when it comes to the flow of money.

What sort of events or what numbers give you the idea that interest rates will be low in 07?

Just a wild guess.. or are you looking at some specifics?

[McDuck]

Nothing wrong with going on gut instinct.

Sometimes the world does work counter intuitively though.

(if it didn't we would never be surprised or amazed)… and it would be a tedious life.

[muppet]

Hi Guys

ASB have raised 4 and 5 yr rates this morning.

Regards

[BarryWilliams]

yes..the long view is interesting. I was speaking with the broker the other day who was expecting the rates to be in the 5-6% range by last quarter 07 and asked what it was specifically which the bank economists were citing as being the driver for the lower rates, and their take is that with a ballooning current account deficit, there were a bunch of key indicators that were leading them to believe th economy was heading for a whole bunch of pain and that they felt this was the period when interest rates would have to be dropped to re-boot a flagging economy. (wish I had a crystal ball) ...Barry

[Gatekeeper]

their take is that with a ballooning current account deficit, there were a bunch of key indicators that were leading them to believe th economy was heading for a whole bunch of pain and that they felt this was the period when interest rates would have to be dropped to re-boot a flagging economy

Problem with that theory is the OCR affects the floating rate. Foreigners won't be too happy investing their money in a stale NZ economy with high deficits unless they get a premium, so where might fixed rates be, maybe higher? Deposits are now attracting more of a risk premium and other central banks are still raising (Australia will do more, Uk probably, EU yep, and US,I believe so). We have to compete for funds.

[BarryWilliams]

I know...I don't disagree that we have to compete for funds. I guess you could argue that there are two views, firstly the international one, where the cost of borrowing money is determined by the lendor, i.e. if base rates are say 6% in the US then it is hard for NZ banks to borrow and then add their margin of 1-1.5% to make a profit for their shareholders.

Secondly, if the NZ economy is in a mess and international rates are 3-4% then 90 day bank bills could be around the 5+ % mark, meaning that lower rates are possible. After all we are talking about 12 months out. My personal view is that with the amount of uncertainty in international markets and the current state of the US economy, their Fed will have to do something to kickstart things in the medium term..or, I could be absolutely wrong!