Source: NZ Herald

18 December, 2008

Alan Bollard’s latest move has sent house buyers scurrying on to the market to finalise deals on properties.

Housing loan approvals jumped 30.6 per cent in the week to December 12 to 9,314, the highest weekly number since June 2007 when the housing boom was at its peak.

The value of housing loans approved leapt 33.7 per cent to NZ$1.032 billion, the highest level since the second to last week of December last year.

This was the first week after the Reserve Bank’s 150 basis point cut in the Official Cash Rate and the first week after 6 month fixed mortgage rates fell to 7 per cent.

It’s too early to say this big jump represents some turning of the market or signs of a recovery in lending to the household sector. This is the second to last working week before Christmas and is always a busy week as home buyers and bankers rush to complete deals before the Christmas break.

However, the volumes and value of approvals in this week were above the corresponding week a year ago (8,480 approvals worth NZ$1.013 billion) and only just below the corresponding week two years ago (11,193 worth NZ$1.491 billion).

There may also have been some pent up lending applications as buyers waited for confirmation of the size of the Reserve Bank’s rate cut on December 4. But regardless of these factors, the strength of the gain in the last week does indicate some activity returning to the housing market.

7 December, 2008

The Reserve Bank on Thursday 4 December cut its official cash rate by an unprecedented 1.5 percentage points to 5 percent and banks moved quickly to cut lending rates by varying amounts.

“It will provide a solid boost to business confidence and give us the chance to return to growth next year,” said Wellington Regional Chamber of Commerce chief executive Charles Finny.

Bruce Goldsworthy, acting chief executive of the Employers and Manufacturers Association (Northern) said given the softening in demand in world markets, exporters needed today’s big cut to keep downward pressure on the New Zealand dollar.

The New Zealand dollar has fallen from above US82c this year to US53c this week, increasing returns to exporters. But exporters also face the prospect of slower demand in export markets as a result of the global financial crisis.

Countries around the world have slashed interest rates to stimulate economies. This week the Reserve Bank of Australia lowered its rate by 100 basis points to 4.25 percent, taking the rate to its lowest level in 6-1/2 years.

“For exporters it’s vital that our interest rates do not get too far out of whack with those in Australia and elsewhere lest our currency falls victim to offshore speculators and/or investors in our debt instruments,” Mr Goldsworthy said.

Source: landlords.co.nz

4 December 2008

A  massive cut in interest rates is bound to spark the languid property market into life, even though we are moving into the silly season, aka Christmas.

The Reserve Bank, today, cut its official cash rate (OCR) 150 basis points bringing it down to 5.0%, a number we haven’t seen for a long time and one which six months ago we could only dream of.

During the day a number of organisations have cut their lending rates, but few have passed on the full 150 points – yet. The biggest mover is SBS which has taken its floating rate to a market low of 7.20%.

What is worth noting though is short-term rates, including the floating rate, are for many lenders at four-year lows.

These big cuts over the past few months are changing the numbers of investment properties. This means it is getting easier to make them cash flow positive, or at least get pretty close to a neutral situation.

Current trends are indicating was that investors are looking, but not getting carried away with prices.

The cut in finance costs may allow them to up their prices a bit more or be less cautious in their approach.

The other event which may change sentiment in the market is the government’s guarantee on deposits. This may help, as surviving finance companies are now getting money rolling in the door and that is helping their liquidity, but also allowing them to resume making loans again.

While most of this lending will be in the commercial and development markets, it may just be enough to help get the market moving again.

If it does start moving it is likely to be slow, rather than a quick, accelerated pick-up.

Source: NZ Herald

4 December, 2008

Banks moved within hours to slash home loan rates in the wake of the Reserve Bank cutting its official cash rate by a record 1.5 percentage points to 5 per cent.

State-owned Kiwibank said it was offering a one-year fixed rate of 6.49 per cent and a variable rate of 7.45 per cent.

Westpac cut its fixed mortgage rates with the two-year rate falling 50 basis points to 6.85 per cent and the five-year rate falling 45 basis points to 7.4 per cent. The Westpac one-year rate is 6.8 per cent.

The ANZ and The National Bank brands are offering six month, one-year and 18 month fixed rate mortgages at 6.99 per cent.

Many of the banks said they had already cut rates in anticipation of today’s move so collectively the moves were large.

ANZ National, ASB, BNZ and Invercargill-based SBS Bank announced their cuts today.

In a clear message to lenders, Reserve Bank governor Alan Bollard said the Reserve Bank expected financial institutions to play their part in the economic adjustment process by passing on lower wholesale interest rates to their customers.

The Reserve Bank acknowledged that recent falls in wholesale interest rates had resulted in “markedly” lower mortgage interest rates offered to new borrowers and households re-pricing existing debt.

Today’s decision brings the cumulative reduction in the official cash rate since July to 3.25 percentage points.

However, banks have moved to tighten credit policies, making it harder for first time home owners to borrow money. ANZ National Bank and some other lenders are now requiring a 20 per cent deposit for most home purchases.

Kiwibank made significant cuts to its rates in late November in anticipation of the move by the Reserve Bank, chief executive Sam Knowles said.

“The decision by the Reserve Bank to make a cut of 1.5 per cent gives Kiwibank room to pass on further savings to those with home loans,” he said.

“In the space of two weeks we have been able to bring down our variable rate from 8.70 per cent to 7.45 per cent. We have also brought the key short-end fixed rates below 7 per cent.”

The bank has not been able to offer such low home loan rates for four years, he said.

ASB announced a drop in its variable home lending rate by 75 basis points, saying it had already cut 75 points in anticipation of the Reserve Bank’s actions. Its new rate is 7.95 per cent. Other term rates remain the same.

SBS, the former Southland Building Society, dropped its floating rate mortgage 195 basis points to 7.20 per cent - a four-year low.

“SBS Bank is able to pass on the full benefits of the OCR reduction and more because we are not affected by the increased cost of borrowing offshore, which has been a result of the global credit crunch,” said chief executive Ross Smith.

“In real terms, it means that householders on a floating rate with a 30-year, $300,000 loan will see about $315.00 carved off their monthly mortgage payments. Passing on the full reduction could potentially be a lifeline to some homeowners.”

BNZ cut its floating mortgage rate to 7.75 per cent for mortgages with a 20 per cent deposit. Its six month rate drops to 6.49 per cent.

The ANZ and National Bank variable mortgage rate is now 8.2 per cent.

Reserve Bank of New Zealand - Media Release

Date 4 December 2008

The Reserve Bank today reduced the Official Cash Rate (OCR) from 6.5 percent to 5.0 percent.

Reserve Bank Governor Alan Bollard commented that “ongoing financial market turmoil and the marked deterioration in the outlook for global growth have played a large role in shaping today’s decision. Activity in most of our trading partners is now expected to contract or grow only very slowly over the next few quarters.

“Economic activity in New Zealand will be further constrained as a result, compared with our view in October.

“Inflation is abating here and overseas as a consequence of these developments. We now have more confidence that annual inflation will return comfortably inside the target band of 1 to 3 percent some time in the first half of 2009 and remain there over the medium term. However, we still have concerns that domestically generated inflation (particularly local body rates and electricity prices) is remaining stubbornly high.

“Today’s decision brings the cumulative reduction in the OCR since July to 3.25 percent, and takes monetary policy to an expansionary position. Given recent developments in the global economy, the balance of risks to activity and inflation are to the downside. Thus it is appropriate to deliver this reduction quickly to support the economy and keep inflation from falling below the target band.

“Monetary policy is working together with the depreciation of the New Zealand dollar and the fiscal stimulus now in train, to provide substantial support to demand over the period ahead and to create the conditions for some rebound in growth as global conditions improve.

“To ensure the response we are seeking, we expect financial institutions to play their part in the economic adjustment process by passing on lower wholesale interest rates to their customers.

“Further movements in the OCR will be assessed against emerging developments in the global and domestic economies and the response to policy changes already in place.”

23 October 2008

Source: NZ Herald

Reserve Bank Governor Alan Bollard has done what most expected this morning and cut the Official Cash Rate by a full one percentage point to 6.5 per cent.

This is the steepest cut since the OCR was introduced in March 1999 and a response to the gravity of the international credit crisis.

Inflation currently is running at 5.1 per cent - a rate not seen for 18 years, but Bollard’s usual concern with inflation has been replaced by a much bigger concern - the impact of the global financial crisis.

Since Bollard surprised the market with a 50-basis-point cut in the OCR six weeks ago, what was a credit crunch has turned in a full-blown global crisis.

Oil price have fallen considerably since then, with most economists expecting inflation to have peaked. Today’s cut is an attempt to kick-start the economy, by freeing up the money supply.

The Reserve Bank is required to keep inflation within 1-3 per cent over the medium term, and expects high inflation pressures to ease rapidly among slowing local and global economies.

The official cash rate had been held at 8.25 per cent for a year until easing started in late July.

Bollard is likely to have been cutting rates this month anyway, but the global crisis meant that last time he cut by 50 basis points - more than most expected and today by such a large amount. He says he has “plenty of room” to cut.

Whether the trading banks move quickly to cut their mortgage rates is yet to be seen. Despite the unexpectedly big 50 basis point cut six weeks ago, there has not been much movement on mortgage rates.

Source: Reserve Bank of New Zealand

Date: 24 July 2008

The Reserve Bank today reduced the Official Cash Rate (OCR) from 8.25 percent to 8.0 percent.

Reserve Bank Governor Alan Bollard commented that “more unpleasant international news has emerged since the June Monetary Policy Statement, and there is a risk that the domestic economy will slow further. Moreover, the cost of funds raised abroad by banks has been rising in recent months as the international financial situation has deteriorated.  Today’s cut will help to mitigate the effect of these increases on the actual borrowing costs paid by firms and households.

“Recent oil and food price increases mean that annual CPI inflation should peak around 5 percent in the September quarter of this year. However, we expect that inflation will return inside the target band in the medium term. The weaker economy is expected to reduce pressure on resources, making it more difficult for firms to pass on costs and for higher wage claims to be agreed.

“Economic activity is likely to remain weak over the remainder of 2008. The ongoing correction in the housing market, together with the very high oil prices, will limit household spending and constrain the extent of recovery. However, high export prices and an expansionary fiscal policy are expected to contribute to a gradual pickup in activity through 2009.

“Consistent with the Policy Targets Agreement, the Bank’s focus will remain on medium-term inflation. In this regard, it is important to note that monetary policy has been reasonably tight for some time, and is now restraining activity and medium-term inflation pressures. Provided that the outlook for inflation continues to improve and there is no excessive exchange rate depreciation, we would expect to lower the OCR further.”

Source: NZ Herald 

14 May, 2008

The flurry of mortgage rate reductions that began on Friday with ASB and BNZ has carried on with Westpac and National Bank both reducing their key mortgage rates.

The banks are passing on reductions in wholesale interest rates in recent weeks as fears about global credit crunch ease and the prospects increase for a cut in the Official Cash Rate (OCR) by the Reserve Bank as soon as June.

Westpac cut its key 2 year mortgage rate to 9.4 per cent from 9.7 per cent, matching the cut announced by ASB on Friday. Westpac has also cut its special “fighting rates” of 21 months to 9.4 per cent and 33 months to 9.29 per cent.

National Bank cut its fixed rates across the board, also reducing its 2 year rate to 9.4 per cent.

While many economic signs - such as the flagging real estate market - are there to clear the way for Allan Bollard to start contemplating reducing the OCR at his next announcement on June 5, most analysts think he’s unlikely to allow any untightening of his grip on anti-inflationary measures just yet.

Last Friday, ASB cut a number of rates. It trimmed its key 2 year mortgage rate to 9.4 per cent from 9.7 per cent, while also cutting its 6 month rate to 9.75 per cent from 9.85 per cent and its one year rate to 9.4 per cent from 9.75 per cent.

ASB acknowledged that the financial markets continue to be volatile, but felt there was room to ease their rate card as there has been a distinct reduction in the cost of funds.

The move, if sustained, will be a huge relief for many homeowners with large mortgages who have faced rising mortgage rates, particularly in the last six months as the banks passed on the higher costs of wholesale funding because of the global credit crunch.

Source: NZ Herald

09 May 2008

ASB has moved to cut its key mortgage rates for the first time since the global credit crunch forced interest rates higher earlier this year.

The move signals the worst of the credit crunch could be over amid signs that a sharply slowing economy and labour market may force the Reserve Bank to cut the official cash rate as soon as next month.

ASB cut its key 2 year mortgage rate to 9.4 per cent from 9.7 per cent. It cut its 6 month rate to 9.75 per cent from 9.85 per cent and its one year rate to 9.4 per cent from 9.75 per cent.

“While the financial markets continue to be volatile, there has been a distinct reduction in the cost of funds across a broad range of terms. We are passing on this lower cost to our customers through adjusting our lending rates,” ASB Managing Director Hugh Burrett said.

ASB is the first of the major banks to cut its fixed mortgage rates, which almost 90 per cent of home buyers rely on to buy a house.

The move, if sustained, will be a huge relief for many homeowners with large mortgages who have faced rising mortgage rates, particularly in the last six months as the banks passed on the higher costs of wholesale funding because of the global credit crunch.