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Westpac moves to cut turnaround times; OCR on hold

At the TMM Better Business Conference this week, Westpac unveiled plans to cut turnaround times and overhaul the mortgage approval process. Find out more: [READ ON].

The OCR was kept on hold yesterday, but wholesale interest rates shot up. No mortgage rate changes from the banks yet. Here's how market rates are shaping up.

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Tactical guessing game

Reasons for the Reserve Bank not to cut the OCR in June are compelling but it’s a guessing game, according to some economists.

Tuesday, May 24th 2016, 2:22PM

by Miriam Bell

Until recently, it seemed there was near consensus among economists that the Reserve Bank was likely to cut the OCR again in its next announcement on June 9.

But, as mortgagerates.co.nz has reported, it seems that consensus may be changing, as a range of different factors impact on the situation.

ANZ’s base case remains that further Reserve Bank easing is likely, but there is little immediate urgency to cut.

The bank’s chief economist Cameron Bagrie said the market is increasingly coming around to the same view.

“Pricing for a June cut has fallen from around 80% two weeks ago to around 25% now, while a rate cut is now only 56% priced by August, which is consistent with our view of the risk profile. We put the odds of a move in August at 60%.”

He struggled to see the urgency for a cut – despite low inflation expectations and rising unemployment – because of a set of stark realities.

These include the booming housing market, little sign of weakness in the economy (apart from dairy), and, currently, a less worrisome global scene.

While dairy is a problem, housing is a bigger one, Bagrie said.

“Pouring more fuel on that fire hardly makes sense. While financial stability and monetary policy are separate in theory, their impacts clearly overlap.”

“With housing affordability now front and centre, the Reserve Bank is doing the government few favours by cutting rates and fuelling more speculative fire.”

Despite such factors, ANZ are still picking a lower OCR, but further down the track.

This is because credit growth is outstripping deposit growth, the persistently high NZD and future fireworks on the global scene.

BNZ economists also believe that rate cuts at this stage of the economic cycle are unwise.

This is because the economy is growing near trend, the labour market is strong, credit growth is accelerating, the housing market has heated up again, household debt-income ratios are pushing record highs and core inflation is within the target band.

However, the bank’s head of research, Stephen Toplis, said the Reserve Bank has delivered a strong message that it intends to push the OCR lower still.

In his view, the Reserve Bank adopted a “tactical” decision to leave the OCR on hold at 2.25% in April in order to maintain the pretence its future flexibility to cut would be limited if it didn’t.

“If the Reserve Bank is to stay tactical then the argument for no move in June becomes significantly heightened and, in many ways, justifiably so.”

But picking the timing of Reserve Bank actions, and understanding the logic of that timing, has proven difficult, Toplis said.

“We believe the Reserve Bank shouldn’t cut rates because the costs of doing so outweigh the benefits.

“Consistency with the March and April reviews says it should, but if the ‘tactical’ argument wins out, it won’t.”

For this reason, and with trepidation, BNZ has shifted to a no-cut June, cut August call, Toplis said.

“Our conviction will diminish if the NZD rises and/or the market moves to more aggressively price it in.”

Tags: ANZ BNZ interest rates OCR forecasts RBNZ Reserve Bank

« Inflation concerns could mean June cutBudget unlikely to change Reserve Bank views »

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
ANZ 5.19 4.05 3.95 4.49
ANZ Special - 3.55 3.45 3.99
ASB Bank 5.20 4.05 3.95 4.39
ASB Bank Special - 3.55 3.45 3.89
BNZ - Classic - 3.55 3.45 3.99
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
Lender Flt 1yr 2yr 3yr
Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
HSBC Premier 5.24 3.35 3.35 3.35
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.15 3.18 3.18 3.20
Kainga Ora 5.18 4.04 3.95 4.39
Kiwibank 5.80 4.30 4.20 4.64
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.55 3.45 3.89
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.25 4.15 -
Pepper Money Near Prime 5.64 - 5.44 5.44
Lender Flt 1yr 2yr 3yr
Pepper Money Prime - - - -
Pepper Money Specialist 7.59 - 7.39 7.39
Resimac 4.50 4.86 3.89 3.94
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - ▼3.55 3.39 3.89
Sovereign 5.30 4.15 4.29 4.55
Sovereign Special - 3.65 3.75 4.05
The Co-operative Bank - Owner Occ 5.15 3.49 3.59 3.89
The Co-operative Bank - Standard 5.15 3.99 4.09 4.39
TSB Bank 6.09 4.35 4.25 4.69
Lender Flt 1yr 2yr 3yr
TSB Special 5.29 3.55 3.45 3.89
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Westpac - Offset 5.34 - - -
Westpac Special - 3.55 3.45 3.99
Median 5.35 4.04 4.02 4.39

Last updated: 11 November 2019 4:01pm

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