RBA rate hike won’t damp deposit rate war
The Reserve Bank of Australia’s rate hike is unlikely to damp the intense competition in term deposits, as New Zealand interest rates remain more attractive than those across the ditch.
Tuesday, October 6th 2009, 10:44PM
by Paul McBeth
The RBA became the first major developed central bank to begin tightening monetary policy when it boosted its benchmark rate 25 basis points to 3.25% from a 50-year low, after Australia avoided falling into recession in the worst global downturn since World War II.
Still, the prospect of higher rates across the Tasman will not take the glean from the deposit rate war in New Zealand, where banks are being forced to offer high yields as they are forced to source more of their funds locally.
New Zealand's "deposit rates are higher than in Australia, which is more a reflection of the intense competition for funding which has pushed deposit rates up," said Khoon Goh, senior markets economist at ANZ National Bank. Local "retail deposit rates should remain more attractive" than Australia's.
Banks were forced to cut their lending margins this year as they sought to fund their operations with increased retail deposits after access to offshore finance dried up amid the credit crunch and financial crisis last year.
As a result, the Reserve Bank of New Zealand has also boosted its capital ratio requirement for lenders to prevent instability in the country's financial system.
New Zealand's central bank embarked on the steepest series of cuts to the official cash rate in July last year, slashing 575 basis points from the benchmark to a record low 2.5%.
Governor Alan Bollard has insisted interest rates will remain at or below the current levels until late next year. Still, as the global recovery settles in, markets are pushing for rate hikes earlier than previously expected.
Paul is a staff writer for Good Returns based in Wellington.
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