Why OCR decision may be good news for home loan rates
Photo:
RNZ
A signal from the Reserve Bank that there could be two more cuts in the official cash rate to come could help drive down home loan rates over the coming weeks.
The
bank cut the official cash rate by 25bps
to 3 percent on Wednesday, as widely expected.
But what came as a surprise was news the monetary policy committee took the decision to a vote on whether the cut should be 50bps or 25.
The bank has also lowered its forecast track to indicate a 2.6 percent OCR through next year.
It had forecast 2.9 percent previously.
Because the bank cuts in 25bps increments, that indicates it thinks it is possible that the rate could drop to 2.5 percent.
Squirrel chief executive David Cunningham said that was likely to mean that one-year swap rates dropped 15 to 20bps in the near term and could bring one-year home loan fixes down to 4.5 percent over the next month or two.
He said the market was likely to be surprised by the fact that a 50bps cut was considered.
Jarrod Kerr, chief economist at Kiwibank, has been a vocal proponent of getting the rate to 2.5 percent.
"Then hopefully things start picking up because what we've seen so far is relief - business going 'thank God I'm not paying interest rates that I was paying last year. But it's not at levels that get them excited and get them to invest.
"The Investment Boost from the government is great but you need businesses willing to spend money on the investment and they're not and I think interest rates are part of that."
ANZ senior economist Miles Workman said banks had moved interest rates ahead of the OCR so they might not shift a lot in the immediate term. But he said there should be an impact on floating rates.
Infometrics principal economist Nick Brunsdon agreed the 25bp cut had been fully priced into home loan rates in cuts over the past two weeks.
"Immediate cuts are unlikely to follow today's announcement.
"However, there were broader signals in the Reserve Bank's announcement which imply further cuts to the OCR - and home loan rates - later this year. The Reserve Bank's projection effectively allows for two further 0.25 percent cuts before 2026. Markets won't treat this as a dead certainty, but we would expect to see banks to start moving rates part of the way down before the next review in October."
Sign up for Ngā Pitopito Kōrero
,
a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
RNZ News
22 minutes ago
- RNZ News
Trade Minister Todd McClay meets with US representatives over 15 percent tariff
Agriculture, Trade and Investment Minister Todd McClay. Photo: RNZ / Samuel Rillstone The Prime Minister says there's no suggestion the US President will budge on a 15 percent trade tariff for New Zealand exports. Agriculture, Trade and Investment Minister Todd McClay has been meeting with his counterpart in Washington this week to convey the government's concerns about the tariff. Christopher Luxon says it's clear Donald Trump is "very fixed" in his view that any country running a trade surplus gets a tariff rate of 15 percent. More to come... Sign up for Ngā Pitopito Kōrero , a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
RNZ News
an hour ago
- RNZ News
What next for Ponsonby's Dorothy Butler Bookstore?
business media 25 minutes ago New Zealand's Dorothy Butler was an internationally recognised advocate for children's literacy and ran her first bookshop from her home while she and her husband raised their eight children. A recipient of the Margaret Mahy Award, Dorothy died at the age of 90 in 2015 but her legacy continues with The Dorothy Butler Children's Bookshop, situated for the last 40 years on Jervois Road in Auckland's Ponsonby. A familiar fixture for many parents, children and schools, it has weathered the challenge of digital reading on screens, determined that as many children as possible should have the pleasure of opening a book and being drawn into its pages. Change is afoot however - at a time when bookshops - and retail in general - have been doing it tough, the current owners have decided to pass Dorothy's mantel on. The shop is up for sale. Helen Wadsworth is one of the co-owners and she joins Emile.
RNZ News
an hour ago
- RNZ News
Banking inquiry acknowledges it's no silver bullet for competition
National Bank of Australia, ANZ, Commonwealth Bank, Westpac. Photo: 123RF The Reserve Bank should set up a new Prudential Policy Committee to monitor market efficiency, according to a cross-party inquiry into banking competition. Parliament's finance and expenditure committee has released its report from the inquiry, but has acknowledged its findings will not be new to the sector, and unlikely to be a silver bullet for competition. The committee met over the course of 13 months, hearing from 216 organisations and individuals. Its inquiry found New Zealand's big four banks' (Westpac, ANZ, ASB, BNZ) focus on lower-risk activities like retail banking would usually see lower returns, but they actually had higher profitability than international peers. The big four disagreed with such a conclusion, submitting their profits were reasonable given their high capital strength and the financial stability they provide the economy. The current regulatory environment was too strict and placed higher costs on the industry, making it harder for smaller banks and non-banking deposit takers to compete. The report makes 19 recommendations, including requiring banks to disclose their profitability on transaction, on-call, and savings accounts. It also suggested banks standardise their processes for residential, business, and rural customers, by agreeing on standard financial information and using digital technology to make it easier to compare products and loan options across banks. Lowering the barriers for overseas banks and fintechs to enter New Zealand would also increase competition, the report said. Guidelines on how banks apply climate-related disclosures were also recommended, with some on the committee questioning the need for the disclosures entirely. Some submitters argued the requirement for disclosures increased interest rates for rural customers, but the report was unable to conclude this was the case. A lack of representation of Māori needs in the financial sector was also found, with the committee recommending banks jointly adopt voluntary service standards to better understand Māori needs, and the government remove anti-money-laundering compliance barriers for Māori land trusts and Māori organisations with multiple owners. Committee chair Cameron Brewer said many of the inquiry's recommendations were already in play. Committee chair Cameron Brewer Photo: VNP / Phil Smith The Reserve Bank is already reviewing the capital settings for deposit takers, including capital requirements for banks (how much capital banks hold in reserve). Cabinet also recently gave Kiwi Group Capital approval for a $500 million capital raise to fund Kiwibank's growth and help it compete against the Australian-owned banks. The report suggested the Reserve Bank cease planned incremental increases to capital requirements, review capital ratio requirements and compliance settings for smaller banks, and look at settings to support market entry of additional banks (such as the $30m initial capital requirement). It also suggested the Reserve Bank establish a Prudential Policy Committee, to sit alongside the Monetary Policy Committee, which would independently monitor the Reserve Bank's prudential performance and progress in establishing market efficiency. That said, the committee acknowledged it had come to the same conclusions as a recent Commerce Commission market study into banking . "We know that our summary of some of the key issues will not be new information to the finance sector. Our recommendations are also unlikely to be a silver bullet for competition, and it now falls to the various government agencies to determine how to implement and respond to our recommendations," the report said. Opposition parties disagreed with some of the recommendations, with Labour sticking to its long-held position that Kiwibank should stay in public hands. It also disagreed the capital requirements should be relaxed, and said the Prudential Policy Committee was a "distraction" that would not address competition concerns. The Green Party and Te Pāti Māori also want Kiwibank to permanently remain Crown-owned. The Greens did not believe making it easier for overseas banks to open in New Zealand was the solution to improve competition, saying it would only entrench the flow of profits offshore. Brewer said he had pushed hard for cross-party consensus where it was possible. "Political consensus on most recommendations is important because it will help keep the pressure on the regulators and banking sector," he said. Labour MP Arena Williams Photo: VNP / Phil Smith Labour MP Arena Williams, who is not a member of the committee but participated in the inquiry, said it had been a great opportunity for bipartisan discussion about the problems in the market. But she said coalition MPs were more focused on the prudential rules when they should have been focused on what would drive down competition and bring home loan prices down. "This inquiry has found that the prudential rules are the problem, at a time when the Commerce Commission is pointing squarely at a lack of competition between the big four banks and Kiwibank as the problem in our market," she said. She felt the inquiry could have found more common ground on Kiwibank. "The government has talked a big game about capitalising Kiwibank, but we know that everyone agrees Kiwibank will be capital constrained in the future. That means it won't be able to drive down the prices of home loans that we're actually seeing it manage in the market now, and so that'll have a long term impact on New Zealanders who want to get into home ownership and want to save for the future." The government has 60 working days to respond to the recommendations. Every six months the banks and other relevant entities will be invited to return to the committee and report on their progress towards implementing the recommendations. Finance Minister Nicola Willis Photo: RNZ / Mark Papalii Finance Minister Nicola Willis said the report would support the government's continuing effors to improve competition in the banking sector. "This includes open banking, competition in prudential policy decision-making, and giving Kiwibank scope to raise capital to become a disruptive competitor," she said. "Additionally, we look forward to the outcome of the Reserve Bank's review of key capital settings for deposit takers. We want to see settings that preserve financial stability while encouraging investment, job creation and income growth." State of competition in banking: Revisit Reserve Bank prudential settings: Rural and business banking: Lending to Māori asset holders, organisations, businesses, and individuals:
