OCR drop

[dandan]

Economists are predicting a .25% drop of the OCR tomorrow.
Economists have a very high success rate of predicting incorrectly.
We're probably looking at, at least a .50% drop.
The housing market is ready for it's next kickstart.
Oil prices are dropping and inflation prospects are looking good.
Fannie and Freddy are hanging with Bush.
Mainstream Bank floating rates should start to drop in the following days.
Some Banks have advised that they will not drop if the OCR drops because of the cost of overseas borrowing.
Those Banks will drop their rates anyway so that their customers dont move to the Banks with the lower rates.

[outspoken]

Pass the tui mate.

That is what is called a dead cat bounce!

[agentyumi]

Despite drastic falls in the New Zealand dollar's value, economists do not think it will have much effect on the Official Cash Rate. The dollar fell during the week from $US0.69 to under 66.5.

Currency strategists say heavy losses in global equity markets prompted caution, encouraging the sale of New Zealand dollars against safe haven currencies like the Japanese Yen and the US dollar.

BNZ Chief Economist Tony Alexander says despite the fall, he is convinced the Reserve Bank will still cut interest rates by a quarter of a percent on Thursday. But he says they have stated they might stay their hand further down the track if the dollar falls much further. Mr Alexander says it will be interesting to see what comments they make to accompany the expected cut in interest rates. Mr Alexander says given the sharp fall in the New Zealand dollar's value, it is unlikely we will see a half a percent drop in the cash rate.

Mr Alexander says because of the high costs banks are forced to pay when borrowing from overseas, the flow-through for home mortgage rates might take a while.

[k1w1]

I have a few GBP's, and from that position the NZD is certainly not falling. All this talk of drastic, sharp falls is complete bollocks from my perspective. It ain't all the USD, you know.

[dandan]

Tony Alexander

Tony Alexander made some good comments in his WEEKLY OVERVIEW from 3 April 2008

http://www.bnz.co.nz/binaries/w030408.pdf

“Didn’t We Say Prices Wouldn’t Fall?
Yep – but that’s forecasting for you. It’s about the future and none of it has happened yet. Heck, if one doesn’t even know what will be consumed for breakfast tomorrow (two eggs on toast or four Weetbix) it’s a big call to pick property price movements.”

[SuperDad]

.5% drop this morning.

Wow.

[dandan]

Now we can also look forward to this weeks Economists media statements advising that this move was in line with their predictions.

Bernard Hickey will write an article on Interest.co.nz today about why the drop was a bad idea.

BNZ will be in denial of the event for 5 - 7 working days.

Kerian will be reconsidering his personal Fixed interest rates.

Olly will be wondering weather his plan to sell all his property and re-buy in the slump will require the re-buy implementation earlier than his next year target.

Vendors will be expecting their price.

[watchful]

Nice pick on the 0.5% earlier dandan. Was expecting 0.25% myself. The way I see it, RBNZ has seen first hand the effect thatlate intervention by the Fed in reducing rates did to their housing market and the effects that has had on the US economy. They realise that a dramatic drop in the NZ housing market is not good for the majority and certainly would have huge implications on our major banks and our entire economy. With inflation under control, they will do their darndest to not let it happen.
I think they have done a comendable job. They saw that Kiwis's need to curb their spending and their moves to raise rates have certainly resluted in most battening down the hatches. Now that risk of large scale inflation is easing, rates can and will fall.

Anyone else think our slump will extend out for 8 or so years as all doom merchants still predict?

[Gatekeeper]

Anyone else think our slump will extend out for 8 or so years as all doom merchants still predict?

I reckon it will for housing, very much like the 91-02 period, very boring, just pay the mortgage and wait it out. But I'm no doom merchant, there will be plenty of opportunities in other areas. For the wheeler dealers there are always opportunities, even in housing, but unlike the past few years, you can't be gauranteed a profit, it's a gamble.

I don't expect interest rates to come down too much, they must really be worried to have dropped the OCR that much. To keep finance available they have to encourage investment, so rates won't go too low considering the mess the financial system is in, and the perceived risk.

[OllyN]

My view

Commendable as the rate cut is, I believe it is too little too late.

We are in a recession along with much of the rest of the world.

The credit crunch is not easing but getting worse, the weakening NZ dollar will make imports dearer, off setting any gains from exports. A cut in mortgage rates by half a percent is hardly likely to send a hoard of property investors back into the market.

Not to mention the billions of dollars tied up in finance companies, the full knock on effects of which haven't even started to flow through.

Look at the USA. and Japan with their OCR's at joke levels. Are they out of recession? Like wise Europe and may other countries.

Everyone welcomes the cut but I believe interest rates will have to be around 6% before there is any hope of a stabilising the property market.

[tanmedia]

I reckon it will for housing, very much like the 91-02 period, very boring, just pay the mortgage and wait it out. But I'm no doom merchant, there will be plenty of opportunities in other areas. For the wheeler dealers there are always opportunities, even in housing, but unlike the past few years, you can't be gauranteed a profit, it's a gamble.

I don't expect interest rates to come down too much, they must really be worried to have dropped the OCR that much. To keep finance available they have to encourage investment, so rates won't go too low considering the mess the financial system is in, and the perceived risk.

Isn't there a general consensus that the OCR will have a negligible impact on mortgage rates based on NZ bank's heightened costs of borrowing offshore? I thought that was the reason for a 0.5% cut.

A bet on the NZD/JPY cross would have been a very good investment in the last 12 months.

[watchful]

I reckon it will for housing, very much like the 91-02 period, very boring, just pay the mortgage and wait it out. But I'm no doom merchant, there will be plenty of opportunities in other areas. For the wheeler dealers there are always opportunities, even in housing, but unlike the past few years, you can't be gauranteed a profit, it's a gamble.

I don't expect interest rates to come down too much, they must really be worried to have dropped the OCR that much. To keep finance available they have to encourage investment, so rates won't go too low considering the mess the financial system is in, and the perceived risk.

Disagree with you. But that's ok it's good to have different opinions.

The reason stated for the OCR to drop by 0.5% is summed up by Dr Bollard.

With medium term inflation pressures expected to ease, it was appropriate to move towards a less restrictive monetary policy stance, he said.

NZ Herald

Simply RBNZ sees inflation under control and no reason to be too tentative with the scale of the drops. Also remember the RBNZ has built a nice cushion of 7.5% (that is huge) with a further 5.5% discount on the Fed's official rate. Of course ours would ever get that low, however there is a lot of relief that our central bank can provide to our banks when the pressure is applied.

If you are trying to state that the banks are (or will) be suffering margins of anywhere close to 5.5% from overseas lenders then sorry but think you are not on this planet. Further, as I have stated before, some of our banks have far greater exposure to this risk than others. Sorry for them but if they wish to try to bleed their customers by holding their rates high, then they can say goodbye to market share. That's why I was astounded when some (Trass and others) were calling all to lock in rates at 5 years some months ago. If you did, then bad move!!

[Gatekeeper]

Isn't there a general consensus that the OCR will have a negligible impact on mortgage rates based on NZ bank's heightened costs of borrowing offshore? I thought that was the reason for a 0.5% cut.

A bet on the NZD/JPY cross would have been a very good investment in the last 12 months.

Correct, the overnight cash rate will have little effect on longer lending. And yes, the yen would have been a good bet. Wonder how much reinvestment is taking place on Uridashi etc?

[dandan]

Kiwi Bank will cut all its rates today.

Kiwi Bank will cut all its rates first. All Banks interested in remaining in New Zealand will follow regardless of over-seas rates.

[watchful]

Kiwi Bank will cut all its rates first. All Banks interested in remaining in New Zealand will follow regardless of over-seas rates.

Just done it. Check Interest rate rise or drop thread.