Interest Rates

[speights boy]

Watching them like a Hawk, plus whatever the rate is that the banks use, cant remember the name.
...........
AHA... SWAP rates, thats what its called.

You will have noticed BK, all the swap rates 1-5 yr have been creeping up over the last week.

Don't know (yet) what it means....just mentioning.

[Austrokiwi]

You will have noticed BK, all the swap rates 1-5 yr have been creeping up over the last week.

Don't know (yet) what it means....just mentioning.

Its a warning sign that NZ mortgage rates may start heading up. Seems the European Left turn( Greece and France) is stating to have an effect

[muppet]

Nearly everyone has dropped one year rates to about 5.25%

[Scott Miller]

Even if a bank hasn't dropped it's official carded interest rate, it will always try to match another lenders rate behind the scenes.

[Bluekiwi]

Its a warning sign that NZ mortgage rates may start heading up. Seems the European Left turn( Greece and France) is stating to have an effect

Is it a question of just how bad things get.
If its bad like it is now, and econmoies are depressed then interest rates stay low.

If it get ready bad like the GFC and banks dont lend to each other, the rates go sky high as banks compete to find funds to lend.

But the economists say that another crisis this time, will not lead to that, as this time round NZ banks have lot better holdings of funds, and in fact are struggling to find people to lend it to.
So rates for NZ wont go up if Europe crash's and burns.

The more pressing questions seems to be not interest rates, but what a collapse in europe and depression would do to China, as last time round china still kept going.
If Europe leads to China going down hill, then our economy takes a massive beating, leading to higher debt and unemployment etc etc.

What does that do to interest rates ?

[Austrokiwi]

Are Banks in NZ flush with funds?

[Bluekiwi]

After the GFC the RB put in place measures that made them source funds locally and some other change I didnt really understand.
But according to the banks economists - yes !!

[Perry]

Are Banks in NZ flush with funds?

So tis said by some.

The Reserve Bank's half-yearly Financial Stability Report released this week
shows the banks are sitting on a cash pile worth $49 billion that they're desperate
to lend. That's more than double their cash pile in late 2008.

[essence]

Have had the ASB match BNZs 5.1% interest rate for a loan that was rolling over.

They also offered me a .5% discount on Floating rate loans.

I'm taking the difference and paying down my loans faster.

Banks are quite keen to lend atm.

[essence]

Just received....

• RBNZ leaves the OCR at 2.5%, and recent developments point to little urgency for interest rates to increase.

• Market now pricing in rate cuts, although may not to be sustained.

• Some fixed rates are now below or similar to floating rate, offering window of opportunity.

The economic recovery remains gradual and inflation pressures are currently subdued. Recent economic developments highlight the downside risks that remain to the outlook in the near term, and we expect the RBNZ to leave to OCR unchanged at 2.5% until March 2013. Nonetheless, we continue to expect the economy to recover which, along with the Canterbury rebuild, will underpin a swift pick up in inflation pressures. As a result, we expect the RBNZ will need to steadily increase the OCR over 2013 and 2014, returning the OCR to 4% by mid-2014. For borrowers, this means that floating mortgage rates are likely to remain at very low levels for the rest of the year, although borrowers do need to be prepared for rising interest rates from 2013.

A combination of domestic and offshore events has seen the market start to price in interest cuts. This has reduced domestic wholesale funding costs, and lowered some fixed-term mortgage rates. In some cases these are lower or at similar levels as the floating mortgage rate. Our view is these declines may not be sustained unless the RBNZ follows through, and provides a window of opportunity for those borrowers that prefer certainty to protect themselves against further interest rate increases.

Borrowers should keep in mind that large uncertainties remain around the economic outlook, particularly renewed European instability. Given the risks to the economic outlook, it is equally conceivable borrowing rates could end up either lower or higher than average. Faced with uncertainty the best strategy for borrowers is to weigh up what their priorities are and make the choice that looks the best aligned with them.

.....equally conceivable borrowing rates could end up either lower or higher than average.

Nothing like having a non-comment, eh??!!!

[Austrokiwi]

Thanks Perry: But I read Bernard Hickys article a little differently. That it is not so much that they have heaps of funds but more like to maintain their position in the market with reduced demands for mortgages they have to be more agressive: From Bernards Article:

"Banks now know that to keep growing profits they have to either poach business from their rivals or reduce operating costs. They can no longer just watch their profits rise with the tide of a fast-growing mortgage market. Mortgage lending growth has collapsed from about 14 per cent in 2007 to barely more than 2 per cent this year. Retaining business is now even more important than growing business."


Anyway back to my comment that was quoted out of context........I said (different wording): increasing swap rates indicate that Interest rates may rise.

[Perry]

I read Bernard Hickys article a little differently. That it is not so
much that they have heaps of funds . . .

I'm puzzled. I can't see how anything other than face value
can be read into this quote:

The RBNZ's Report shows banks are sitting on $49 billion cash . . .

What am I not seeing?

[Austrokiwi]

Yeah I saw that but is that actual cash they have in their hands or credit available to lend? Clearly the banks are in a very different business environment to the one they were in a few years back There is less demand for mortgages, so their is more pressure to encourage new business by poaching from the competition. At the same time the risks of loosing a current customer are such that a bank must be much more customer service oriented and that I see as Bernard Hickeys main point. As for interest rates: there seems to be multiple drivers and as a result predicting the direction of interest rates is next to impossible( as per Tony Alexanders most recent commentary. Some of the drivers

For upwards moves: NZ $ dropping ( increasing hedging costs for banks), Swap rates are increasing( For now), Decrease in demand for NZ goods as global economy slows further. Perception of Risk by foreign lenders
For downwards moves: Lack of mortgage demand, Negative real interest rates in Europe and the US ( making NZ banks borrowing cheaper).

Just for the few drivers I have listed there are a number of changes that could occur that could change the current dynamics. For example: If commodity prices drop further the NZ dollar would drop. the results could be: swap rates jump higher as NZ Risk is assessed as higher and hedging costs would go up this could act to drive interest rates up......however it could be counterbalanced by a further drop in demand for money if there is less money coming into NZ people will feel poorer and borrow less.

[Perry]

Hard To Say

Yeah I saw that but is that actual cash they have in their hands or credit available to lend?

If it was available credit, shouldn't the article say so?
Maybe look at the RBNZ Report for any interpretation
of 'deeper meanings?' Here's a chart from the report:

[Austrokiwi]

I see what your saying but I think we are dealing with half the info what has happened to private debt levels over the same time? It would interesting to see how the Aussi parents of the main 4 banks account for the money do they regard it as New Zealand funds as opposed to Aussi profit? Some of what the Reserve bank accounts as liquidity is NZ gvt debt owned by NZ banks hence my interest in how the parent aussi companies account for it. I am assuming ( may be wrongly) that currency is the minor contributor to the RB stats(2/3 of the stated liquid assets are Gvt debt)