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Future rate cuts unlikely

Reserve Bank governor Alan Bollard confirmed expectations by leaving his Official Cash Rate (OCR) unchanged at 5%, highlighting concerns about the buoyant housing market and house price inflation.

Thursday, September 4th 2003, 10:03AM

by Jenny Ruth

In his latest Monetary Policy Statement, Bollard also noted that while the economy is cooling, that isn’t happening as sharply as previously expected, although exports are still under pressure due to the rising New Zealand dollar and sluggish global recovery.

Economists are interpreting the statement as signalling that a further rate cut this year is unlikely, although that hasn’t been completely ruled out, and that rates could rise again from the middle of next year.

"Today’s statement was slightly on the tighter side of neutral," says Brendan O’Donovan, chief economist at Westpac Bank who had been among those thinking a further cut might be in the wings.

That was on the basis that the New Zealand dollar would keep rising, inflicting more damage on exporters.

Today’s statement suggests the currency would have to rise further than previously thought before the central bank considered a further rate cut necessary, O’Donovan says. "They’ve effectively raised the bar."

While the state of the housing market is a valid concern for the Reserve Bank – he estimates house prices are about 9% over-valued – the central bank’s short-term inflation forecasts are too high, he says.

Although there’s a strong speculative element in the housing market, "it’s the only source of inflation pressures in the economy."

Deutsche Bank, previously among the most aggressive in forecasting rate cuts, changed its view today from expecting a further cut to the OCR remaining unchanged for the next 12 months.

Anthony Byett, chief economist at ASB Bank, says today’s statement sent "a reasonably clear message" all but ruling out further rate cuts and that the question now is whether rates will have to rise again next year. The central bank’s assumptions, which aren’t necessarily forecasts, are that the OCR will rise from the middle of next year.

John McDermott, chief economist at National Bank, says the statement "altered the balance of risks" away from the downside risks to the economy. He sees short-term interest rates remaining more or less where they are until the second half of next year while longer-term rates will probably rise on the back of a global economy.

« NZRPT harvests good surplusSovereign takes regulation bull by the horns »

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 6.79 6.65
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 7.24 6.79 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 - 7.24 6.79 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 7.84 7.39 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 - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 7.29 7.15
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 6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 ▼8.09 ▼7.59 ▼7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 ▼9.09 ▼8.59 ▼8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.74 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 6.95 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 7.29 7.32 6.65

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