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Bollard holds OCR at 2.5%

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  • Bollard holds OCR at 2.5%

    Bollard holds OCR at 2.5%

    Rob Hosking | Thursday January 28 2010 - 09:07am
    No change to the official cash rate – the Reserve Bank this morning opted to keep it at 2.5%.
    Nor is there any change in the outlook: governor Alan Bollard says the economy is continuing to recover, and inflation is in the middle of the 1-3% target band, “and is expected to track comfortably within the band over the medium term.”
    He does not anticipate raising the official cash rate until “around the middle” of the year – a position he has held for some time, despite the overnight index swap (OIS) markets pricing in a rate rise from April.
    “Global activity continues to recover, helping push New Zealand’s export commodity prices higher,” Dr Bollard said in announcing the decision.
    “Economic growth is most apparent in China, Australia, and emerging Asia.
    “However, sustained growth throughout our trading partners is not assured, with many still facing impaired financial sectors and overall activity still reliant on policy support.”
    Simultaneously with Dr Bollard’s decision, the US Federal Reserve came to similar conclusions – also opting to leave interest rates low, with a warning that economic uncertainties means no rate rises are likely for an extended period.
    There is still uncertainty on the local front, too, about how robust the recovery is going to be, Dr Bollard said.
    “Similarly, the New Zealand economy continues to recover. Policy stimulus and improving export earnings have seen a pickup in household spending.
    “That said, households remain cautious, with credit growth subdued. Business spending remains weak.”
    The next official cash rate review, accompanied by a full monetary policy statement with updated economic forecasts, is due March 11.
    http://www.nbr.co.nz/article/bollard...-ocr-25-117678
    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

  • #2
    In line with what most people thought, floating seems to be the way to go at present.
    www.ilender.co.nz
    Financial Paramedics

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    • #3
      Originally posted by brokerman View Post
      In line with what most people thought, floating seems to be the way to go at present.
      6mth and 1 year fixed rates are also compeditive. Most under the floating rate.

      All the best,

      Niall

      Comment


      • #4
        Hiya Niall. most floating rates are under 6% and most (certainly 1 yr) fixed are over? I guess people should make a decision based on individual circumstances. Personally I'd go 50/50 floating and 1 year fix, but thats me!
        www.ilender.co.nz
        Financial Paramedics

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        • #5
          There is some talk that rates will take a big sudden jump up to double digits.

          Emergency low rates - what we are on now - may not stay for long.
          Then again Japan has had 20yrs of it.
          The three most harmful addictions are heroin, carbohydrates and a monthly salary - Fred Wilson.

          Comment


          • #6
            Originally posted by PC View Post
            There is some talk that rates will take a big sudden jump up to double digits.
            Do you have a link or reference for that statement?

            "What is going to happen then is that starting from the middle of this year at the latest, the Reserve Bank will take away the unusually low cash rate and get things back towards neutral or more likely a tad above neutral come early 2012. That means the cash rate rising from 2.5 per cent toward 6 per cent."

            See: Tony Alexander - "Mid Year Cash Rate Rise is Likely" - 27 January 2010
            Comments may not be relevant to individual circumstances. Before making any investment, financial or taxation decision you should consult a professional adviser.

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            • #7
              No sorry - all hearsay.
              What will a 3% leap in floating rates do for cash flow?
              Then add on ring fencing of losses...etc
              Ouch!
              The three most harmful addictions are heroin, carbohydrates and a monthly salary - Fred Wilson.

              Comment


              • #8
                Well I certainly hope we dont see an OCR of 6%. Seems a bit pessimistic as growth isnt strong at all, (at the moment) and I'm not sure we will see strong growth this year.
                As PC points out, when the Tax system changes its going to mean some adjustments and the RB would have to be careful about not killing everything. It is possible that the changes may mean a leveling of prop values which would ease any requirement for OCR increases.

                Mark B aka The Punk
                You do realise that after that screenshot was taken that Butch and Sundance were shot down in flames.....heh

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                • #9
                  Unless other countries do the same, our $ will fly, which will suck , big style.

                  Comment


                  • #10
                    Originally posted by captaincrab View Post
                    Well I certainly hope we dont see an OCR of 6%. Seems a bit pessimistic as growth isnt strong at all, (at the moment) and I'm not sure we will see strong growth this year.
                    Well he is looking 2 years into the future (always a very dangerous thing for an economist to do) and it seems a lot more palatable than rates taking "a big sudden jump up to double digits".

                    And if his comments about a nuetral OCR being just below 6% (he said 6% was "a tad above neutral") then it doesn't take too much strength in the economy to get to 6%.


                    Originally posted by captaincrab View Post
                    You do realise that after that screenshot was taken that Butch and Sundance were shot down in flames.....
                    Yeah, but at least they went down fighting.
                    Comments may not be relevant to individual circumstances. Before making any investment, financial or taxation decision you should consult a professional adviser.

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                    • #11
                      just can't see the OCR climbing that much this year. All the economic pointers say small rise at best if not to stifle any chance of growth on 2010. As far as mortgage rates are concerned Banks making good margins with longer term fixed rates totally out of kilter with the market.
                      www.ilender.co.nz
                      Financial Paramedics

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                      • #12
                        I disagree with the short term view on interest rates. We have strong indications that the OCR will move as early as April and keep going up from there.

                        Look at one year & 2 year rates now relative to 6 months.

                        6M 5.7%
                        1Y 6.2%
                        2Y 7.2%
                        3Y 7.8%

                        This tells me that we are expecting the 6 month rate in 6 months time will be roughly 6.7%. (6M at 5.7%, 6M at 6.7% = average over 1 year of 6.2%).

                        It also tells me that the one year rate in one years time 8.2% if those figures are to be believed. (1Y at 6.2%, 1 year @ 8.2% = average over 2 years of 7.2%).

                        Going beyond the 3Y rates are a bit of a gamble, as there are some hefty risk premiums priced into those over swap rates.

                        In any case the short/medium term interest rates have been steadily rising. There might be a bit of easing in the near future as the main banks have just had their credit ratings improve (taken off a negative credit watch) which should improve their access to international money.

                        Comment


                        • #13
                          Entirely predictable.
                          check out the 3 and 10 year bond rates. Been slowly edging down. Will continue for some time.

                          http://www.nbnz.co.nz/economics/interest/default.aspx

                          NZ is beginning to pay its way for the first time since 1972. Oil account in surplus, tourism, kiwifruit, wine,timber, milk all earning more than ever. More money being returned home, debt being replaced. Look for lower interest rates. for quite some time.

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                          • #14
                            Originally posted by roseneath_rat View Post
                            I disagree with the short term view on interest rates. We have strong indications that the OCR will move as early as April and keep going up from there.
                            I think long rates are overpriced.

                            Comment


                            • #15
                              Yes long term rates have a higher premium built into them. I think people are also underestimating how fast rates are going to go up. Bank economists are picking that OCR will be 6.0% in less than 18M.

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