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currently is running at 5.1 per cent - a rate not seen for 18 years, but Bollard’s usual concern with inflation has been replaced by a much bigger concern - the impact of the global financial crisis.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