30 June 2010

An increase in the Official Cash Rate (OCR) this month had some investors concerned about the stability of the property market and property prices moving forward.

However Reserve Bank Governor Dr. Alan Bollard has said that because more than 30% of mortgage debt is on floating rates and the long term rates are now higher than short term, the OCR will not need to be increased at the same speed as previous recoveries.

The Real Estate Institute of New Zealand (REINZ) President Mr. Peter McDonald says “Interest rates are only one of many factors which influence the property market.  While Dr. Bollard notes that households continue to be cautious about investing in homes, median prices are still up on a year ago as we have not yet caught up on the supply shortage caused by the fall in the building of new houses during the recession.”

Mr. McDonald goes on to say that the Reserve Bank has found clear signs that the New Zealand economy is well into recovery, which should be reassuring for first home buyer and investors.

Ref: www.reinz.co.nz

Source: NZ Herald 

29 Jan 2009

New Zealand now has the lowest Official Cash Rate since its introduction in March 1999, as Reserve Bank Governor Alan Bollard announced a 150 basis point cut.

This cut takes the OCR down to 3.5 per cent, a full percentage point lower than the previous bottom of 4.5 per cent when the rate was first introduced a decade ago.

Alan Bollard has again called on banks and financial institutions to pass on the reductions to their customers.

The money markets have been regarding a cut from 5 to 4 per cent as a near certainty and saw about a 50:50 chance that governor Alan Bollard would drop the rate to 3.5 per cent.

Since last July the Reserve Bank has lowered the OCR by a cumulative 475 basis points, dispensing ever-larger cuts as the flow of economic data, foreign and domestic, has worsened markedly.

In a press statement accompanying the announcement, Bollard said: “The news coming from our trading partners is very negative. The global economy is now in recession and the outlook for international growth has been marked down considerably since our December Monetary Policy Statement.

Inflation pressures were abating, said Bollard. He said the bank had confidence that annual inflation would “be comfortably inside the target band of 1 to 3 per cent over the medium term”.

“Given this backdrop it is appropriate to take the OCR to a more stimulatory position and to deliver this reduction quickly,” he said.

“Today’s decision brings the cumulative reduction in the OCR since July 2008 to 4.75 percentage points. Lower interest rates will have a positive impact on growth, alongside a lower exchange rate and fiscal stimulus, provided firms and households do not unnecessarily contract their spending.”

Bollard again made the point that the bank expected financial institutions to play their part in the “economic adjustment process” by passing on lower wholesale interest rates to their customers.

“This will help New Zealand respond flexibly,” said Bollard.

“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. We would expect any further reductions to be smaller than those seen recently.”

New Zealand now has the lowest Official Cash Rate since its introduction in March 1999, as Reserve Bank Governor Alan Bollard announced a 150 basis point cut.

This cut takes the OCR down to 3.5 per cent, a full percentage point lower than the previous bottom of 4.5 per cent when the rate was first introduced a decade ago.

Alan Bollard has again called on banks and financial institutions to pass on the reductions to their customers.

The money markets have been regarding a cut from 5 to 4 per cent as a near certainty and saw about a 50:50 chance that governor Alan Bollard would drop the rate to 3.5 per cent.

Since last July the Reserve Bank has lowered the OCR by a cumulative 475 basis points, dispensing ever-larger cuts as the flow of economic data, foreign and domestic, has worsened markedly.

In a press statement accompanying the announcement, Bollard said: “The news coming from our trading partners is very negative. The global economy is now in recession and the outlook for international growth has been marked down considerably since our December Monetary Policy Statement.

Inflation pressures were abating, said Bollard. He said the bank had confidence that annual inflation would “be comfortably inside the target band of 1 to 3 per cent over the medium term”.

“Given this backdrop it is appropriate to take the OCR to a more stimulatory position and to deliver this reduction quickly,” he said.

“Today’s decision brings the cumulative reduction in the OCR since July 2008 to 4.75 percentage points. Lower interest rates will have a positive impact on growth, alongside a lower exchange rate and fiscal stimulus, provided firms and households do not unnecessarily contract their spending.”

Bollard again made the point that the bank expected financial institutions to play their part in the “economic adjustment process” by passing on lower wholesale interest rates to their customers.

“This will help New Zealand respond flexibly,” said Bollard.

“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. We would expect any further reductions to be smaller than those seen recently.”

 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.