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Rate cut coming - but how big?

An interest rate cut is almost definite this week, however economists are divided on whether it will be a 25 or 50 basis point cut.

Monday, June 2nd 2003, 9:15PM

by Jenny Ruth

The wholesale interest rates market has well and truly jumped the gun as far as anticipating the Reserve Bank’s decision on Thursday on where to put its Official Cash Rate (OCR).

Although the OCR is currently 5.5%, the 90-day bank bills ended last week at 5.25%, suggesting market participants expect the OCR to be cut to at least that level. In late April, the Reserve Bank took the market by surprise and cut the OCR from 5.75%.

While everyone is expecting a cut, economists are somewhat divided as to whether it will be to 5.25% or to 5%.

Bank of New Zealand economists look back to the last economic slowdown in 2000 and note that while the very weak currency came to the rescue then, helping to ensure a soft landing, it is unlikely to do so this time around. In fact, the already strong New Zealand dollar is likely to continue rising.

"We remain cautious that the slowdown could be more abrupt than expected," BNZ says. Concerns about the currency combined with last week’s National Bank survey showing a net 44% of businesses expect the economy to worsen over the next year bolsters the chance of a 50 basis point cut, it says. BNZ is still picking only a 25 point cut.

ASB Bank chief economist Anthony Byett is also forecasting a 25 point cut. A key reason not to go for 50 points is the buoyant housing market.

While the latest housing consent figures showed a 10.7% drop in April, they are still at very high levels, Byett says. The April fall might only reflect the Easter and ANZAC Day holiday-shortened month, he says.

"Also, bigger and more expensive dwellings (especially expensive apartments) mean the value of consents was still a healthy 16% up on April 2002. These data remain consistent with residential building activity stabilising at a high level," Byett says.

Macquarie Bank economists note that the trade weighted New Zealand dollar is actually exactly where the Reserve Bank predicted it would be in its March monetary policy statement. "The currency provides no justification for further monetary policy easing this week."

ANZ Bank economists also opt for the cautious approach.

"While risks are tilted to the downside at present, there remains considerable uncertainty about just how much growth (and hence resource and inflation pressures) will ease over the year ahead," it says.

« Housing market slows gradually: economistReserve Bank delivers rate cut as expected »

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.45 7.05 6.85
ANZ 8.64 ▼7.84 ▼7.39 ▼7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - ▼7.24 ▼6.79 ▼6.65
ASB Bank 8.64 ▼7.29 ▼6.85 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.29 6.85 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.89 7.45 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - ▼7.09 - -
Co-operative Bank - Owner Occ 8.40 ▼7.29 6.89 6.75
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 ▼7.79 7.39 7.25
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.85 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.59 7.29
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.35 7.89 7.65
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.35 6.89 6.75
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.90 7.39 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.30 7.89 7.69
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.30 8.89 8.69
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.95 7.45 7.29
SBS Bank Special - 7.45 6.95 6.79
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 7.05 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.19 7.55 7.55
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.39 6.75 6.75
Unity 8.64 6.99 6.85 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 7.15 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.45 7.37 6.77

Last updated: 4 March 2024 9:31am

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