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Rates Round Up

BNZ boosts 18-month deposit rates, cuts one-year terms;Fonterra slashes perpetual bond returns in response to record low OCR; RBNZ says competition pushes deposit rates up.

Monday, July 13th 2009, 5:10AM

BNZ boosts 18-month deposit rates, cuts one-year terms
Bank of New Zealand has jumped ahead in the 18-month term deposit space, boosting rates to 4.7% for any value, just 5 basis points behind TSB, and 20 points more than closest rival Westpac in that space.

It traded off the increased return by cutting 12-month rates to 4%, 4.05% and 4.1% for $10,000, $50,000 and $100,000 amounts respectively.

New Zealand Finance bolstered its longer term rates, lifting two-, three-, four- and five-year deposit rates by 60 basis points, while CBS Canterbury, which expects profits to start normalising next financial year, boosted its short-term rates, with five-, six, and nine-month terms increasing 50 basis points.

Fonterra slashes perpetual bond returns in response to record low OCR
Fonterra has slashed 391 basis points from the coupon on its perpetual capital notes to 4.83% after it reset the interest rate payable on July 10.

It blamed the Reserve Bank's moves to cut the official cash rate in response to the global recession as the cause of an almost 4 percentage point decline in one-year government bonds in the past year. Governor Alan Bollard cut the OCR to a record low 2.5%, having slashed 575 basis points from the benchmark rate since July last year.

To date, there is $35,083, 579 principal amount of capital notes on issue to holders other than Fonterra, and the next quarterly payment will be made on Oct. 12 to holders registered on Oct. 2 2009.

Last year, the notes cut the coupon to 8.74% from 9.37%.

RBNZ says competition pushes deposit rates up
Increased competition for deposit funds has pushed up deposit rates as banks "attempt to ensure they maintain, or even grow, this source of funding," according to the latest Reserve Bank update on bank costs and margins.

Parliament's Finance and Expenditure Committee, which backed down on holding an inquiry into whether banks are unduly holding up mortgage rates, issued a report questioning the effectiveness of the official cash rate as a tool to reign in interest and exchange rates.

The FEC again raised concerns the major trading banks may be profiteering in a recessionary environment, and said the central bank should "continue to pressure the banks not to widen the margins between lending and borrowing unjustifiably."

Reserve Bank Governor Alan Bollard told the committee any reduction in mortgage rates could result in reduced deposit rates.

Bollard said he isn't concerned at the competition in the term deposit area, and reiterated its belief that "interest rates should be set by the market."


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