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OCR cut to 3 percent
The Reserve Bank today cut official interest rates to 3 percent from 3.5 percent, meaning homeowners are set to benefit further through mortgage rates that are likely to drop to historic lows.
Economists had expected a cut of somewhere between half a percentage point and 1 percentage point. It is arguably the first time in the current "easing" cycle that Reserve Bank Governor Alan Bollard has slightly surprised the market on the low side. Previously he has tended to make bigger cuts than expected.
Today's lighter cut, after a 150 basis point cut in January, followed the Reserve Bank of Australia's decision last week to hold that country's rates at 3.25 per cent.
But today's move will still help homeowners. According to Reserve Bank figures dating back to 1964 our mortgage rates are now approaching historic lows.
The average floating rate offered by banks was 5.7 percent during three months of 1964 and has not fallen as low since, having risen steadily until 1987 where they peaked at 20.5 percent. The next closest low period was in 1999 in the aftermath of the Asian Financial Crisis, where the floating rate dipped to 6.4 percent.
ASB economist Chris Tennent-Brown says if the OCR falls to 2 percent by mid-year as his bank is predicting, then the floating rate would be expected to drop below 5 percent.
"Floating interest rates could easily drop 1 percent to 1.5 percent from where they are now," says Tennent.
The smaller cut than many expected saw the New Zealand dollar immediately surge in value against the American currency to US51.2 cents from US50.58 prior to the announcement.
The RBNZ has been cutting the Official Cash Rate in aggressive fashion since last July when the rate stood at 8.25 per cent. Bollard has also been putting pressure on the banks to pass on the rate reductions to customers.
Today he turned his focus on to banks' lending to business. "While credit growth is easing in line with the weak economy, we expect financial institutions to continue lending on sound business propositions, to support the recovery," he said.
The central bank's action has been in an effort to breathe life into our economy, which has now been in recession since the start of 2008. Most economists expect the recession will continue at least till the end of the current quarter.
Bollard said the policy changes by the RBNZ, together with the sizeable exchange rate depreciation, would act to support the New Zealand economy.
"Therefore, we expect to see activity troughing in the middle of this year and then gradually picking up thereafter. However, the scale of the global financial crisis is such that there is great uncertainty about future economic developments and there is a risk that the recovery may occur later and be more protracted than we anticipate." The RBNZ's efforts to get bank interest rates down have had an impact. According to RBNZ figures for January the average floating mortgage rate for new customers was then 7.04 per cent compared with 10.44 per cent in January 2008. The one-year fixed rate mortgage average had dropped to 6.17 per cent from 9.78 per cent over the same period.
Our economy was initially knocked into recession by a combination of last summer's drought, the then high interest rates and soaring fuel bills. While many of those issues have been resolved subsequently, our businesses are now being hit hard by the ongoing effects of the global financial market meltdown that took place in September/October last year.
The combination of lower interest rates and tax cuts is putting more money in many people's pockets and does appear to be starting to have some impact.
February house sale figures from the Real Estate Institute showed a strong recovery in the number of sales from a record low in January. According to QV, however, prices are still falling - having dropped 8.9 per cent in the past year. "As economic activity troughs, we expect the rapid easing of monetary policy to slow," Bollard said.
"Any future cuts will be much smaller than observed recently. We do not expect to see in New Zealand the near-zero policy rates of some countries. New Zealand needs to retain competitiveness in the international capital markets. We will assess the need for further cuts in the OCR against emerging developments in the global and domestic economies and the responses to policy changes already in place."
Source: http://www.stuff.co.nz//2254521/OCR-cut-to-3-percent
Cheers
MarcFree business resources - www.BusinessBlogsHub.com
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Last sentence
From the reserve banks email service. When you read the last sentence do you see further cuts or just fence sitting.
Reserve Bank Email Service
NEWS RELEASE
Date 12 March 2009
Time EMBARGOED TO 9:00am
OCR reduced to 3 percent
The Reserve Bank today reduced the Official Cash Rate (OCR) by 50 basis
points to 3 percent.
Reserve Bank Governor Alan Bollard said: "The world economy
deteriorated very rapidly late last year, amid ongoing losses and
extreme volatility in international financial markets. While monetary
and fiscal policy responses in many countries have been substantial we
still expect the adverse economic forces generated by the crisis to
remain dominant throughout 2009. The timing and extent of global
recovery remain highly uncertain.
"In New Zealand, the impact of difficult trading conditions is showing
through clearly in reduced export revenues, weak business sentiment, and
sharply curtailed investment and employment. Further house price falls
and increased precautionary saving by households are driving a weakness
in spending. Inflation pressure is abating rapidly as a result.
"The OCR has now been reduced 525 basis points in little more than six
months, taking interest rates to very stimulatory levels. Further falls
in the lending rates faced by households and businesses are in the
pipeline. While credit growth is easing in line with the weak economy,
we expect financial institutions to continue lending on sound business
propositions, to support the recovery.
"In addition to the substantial change in monetary policy settings,
there has been a large amount of stimulus from fiscal policy. These
policy changes, together with the sizeable exchange rate depreciation,
will act to support the New Zealand economy: therefore, we expect to see
activity troughing in the middle of this year and then gradually picking
up thereafter. However, the scale of the global financial crisis is
such that there is great uncertainty about future economic developments
and there is a risk that the recovery may occur later and be more
protracted than we anticipate.
"As economic activity troughs, we expect the rapid easing of monetary
policy to slow. Any future cuts will be much smaller than observed
recently. We do not expect to see in New Zealand the near-zero policy
rates of some countries. New Zealand needs to retain competitiveness in
the international capital markets. We will assess the need for further
cuts in the OCR against emerging developments in the global and domestic
economies and the responses to policy changes already in place."
You can read the Monetary Policy Statement at the following link
Media contact:
Mike Hannah
Head of Communications
Ph 04 4713671, 021 497418, [email protected]Comment
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Why are floating rates so high in NZ compared to the rest of the world. The margin that is.Comment
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They say it's because we have a high current account deficit and we need to fund that with higher interest rates. But that doesn't make any sense to me either. Can't see how the 2 things are linked.
Can someone please explain?
DavidSquadly dinky do!Comment
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told us they would what? drop the OCR? Was it ever in question? I believe on that thread, the main question was the long term rates falling - which they have not so far....Originally posted by exnzpat View PostJo Birch
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+61 450 148 678Comment
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Jo the other side to the coin is that banks make money in large part by lending. Once they get confident about the security used again they will start to compete like they are in OZ right now with discounting of fixed rates to get people through to doors and start writting business again. Or will they (looks toward the crystal ball)??
Just edited to ask: Are people asking for discounts and discounted rates on new lends and existing loans with the NZ banks. Banks are knocking .5 to .8 of advertised home loans in OZ. Are they doing it in NZ?Last edited by Don and Liz; 12-03-2009, 06:37 PM.Comment
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Perhaps the higher interest encourages overseas investors to park capital here and earn some peanuts interest rather than just some salt and a empty bag as in the UK US Japan etcOriginally posted by Davo36 View Post
The capital thats parked up can perhaps be used to help service/fund the deficit payments since exports dont match imports??
Theres no real savings base here in NZ to fund it ourselves? Its all debt based that can not be good!? Look at Fonterra a debt ridden dinosaur with to much unsellable product....
Not really sure either though...damn another thing to go check out...Last edited by Badger; 12-03-2009, 06:40 PM.Comment
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I seem to remember one of the property guru's saying you could usually shave .25% off the gong rate.Originally posted by Don and Liz View Post
Without having a huge portfolio, but .5 to .8 must be for the big boys.
And Dean and Mat for example are getting pretty big.Comment
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It's hard work getting any discounts out of the banks at the moment. They keep squiring and saying it just is too low already. Even saying you are going to move illicits a response of show us the other offer and we'll match it.Comment
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Just for asking they tell me. Maybe you have to do it personally face to face sitting half uneasy in your chair with your shoulder and feet pointing to the door..5 to .8 must be for the big boysComment
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Originally posted by Heg View Post
Obviously, you are a loyal citizen of Gilligan’s Island.
But, no – I have no magical powers for fortune telling. I’ve lived this very scenario right here in the States -- about this time last year, in fact.
Just take a look at this weeks Herald. There are stories that proclaim a turn in the housing industry and stories that do not. We saw the exact same thing here in the States a year ago. Also, interest rates continued to be lowered.
The Fed (The US Federal Reserve) continued to lower interest rates during this time period (Oct 2006 – Apr 2007). About midyear they froze the rate. Then October 2007 happened and the bottom fell out of the economy. Over subsequent months, to this date, most invested Americans lost more than half their wealth. But, also since October 2007 interest rates have been lowered two more times to no avail.
The same pattern has been followed about the planet in an effort to jumpstart each struggling economy. And incredibly, it’s not working.
Last year I expected to see a heavy recession with rising inflation and increasing interest rates. I see now that I was wrong. Because it is very clear we are entering a period of deflation. Essentially, the values of things are being decreased to move inventory. By “things” I mean everything from peanuts to houses. There is no need to raise interest rates when people are not buying. The economy is slowing all by itself. And if that pattern holds true it should be reflected in the NZ economy about this time 2010. We shall see…
By the way, Heg I’ve always enjoyed your cats.Last edited by exnzpat; 13-03-2009, 05:15 PM.Comment
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The current deflationary period will pass as quantative easing gains traction, but Id punt that freshly printed cash will be heading into commodities, not because of China growth but because there will just be "shortages" Population is outstripping the ability of land to produce even with massive petro chemical inputs...
High interst rates incourage saving and with out saving an economy has no real capital or back bone.
As for the US theres no capital just trillions in debt and unfunded liabilities...
Low interest rates dont magically wisk up the resources needed for more growth and with out growth theres no way to pay interest on past debt let alone future debt...
Its no surprise the financial system relying on growth inploded with oil at $140 etc etc the growth cieling of the planet had been meet and checked...
Round two is getting under way...Comment
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With China’s “growth” tied directly to the buying power of Americans it’s pretty evident we can expect their “growth” to slow dramatically.Originally posted by Badger View Post
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