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Economists react to bank funding programme

Economists are divided on whether the Reserve Bank will need to cut the official cash rate further after it launched a new funding programme to push down interest rates. 

Wednesday, November 11th 2020, 2:32PM

Nick Tuffley

The Reserve Bank has kept the official cash rate on hold at 0.25%, but outlined details of its Funding for Lending Programme, which will kick off next month.

The FLP will give banks access to cheaper funding and in turn reduce borrowing costs for individuals and businesses. 

The programme will be set at the rate of the OCR, with the size of the programme set at 4% of each participant's total loans and advances.

A conditional additional allocation of 2% of eligible loans will then be made available, for a total size of 6% of eligible loans, the central bank said.

Analyst estimates suggest the FLP could be worth $30 billion to $50 billion.

The much-anticipated programme, tipped to send mortgage rates below 2%, will go live in December as the Reserve Bank attempts to stimulate the economy following the Covid-19 pandemic.

Nick Tuffley, chief economist at ASB, said the FLP would "drive down bank funding costs and feed into economy-wide interest rates".

Tuffley said the programme, and stronger than expected economic recovery, could reduce the need for further OCR cuts. 

"Our assessment of how the economy is tracking suggests the FLP scheme could be enough stimulus to ensure the NZ economic recovery remains sufficiently on track.

"We are shifting to forecast that the OCR will now remain on hold at 0.25%, although the balance of risks will remain skewed towards the need for further support."

Stephen Toplis of BNZ said the FLP makes negative rates "less likely". 

He pointed out the RBNZ had changed its unconstrained interest rate track, indicating fewer cuts were needed.

"The Bank thinks conditions have improved sufficiently to require 90 basis points less stimulus than was previously assumed," he said.

Kiwibank chief economist Jarrod Kerr, welcomed the FLP.

"Since February, we have pounded the table in favour of bank term lending facilities as the next best monetary policy option. Today’s FLP announcement was a well-orchestrated, well-telegraphed, but long-awaited policy move. Late, but in earnest."

Kiwibank still believes the OCR will fall further next year.

"We remain of the view that the RBNZ will follow through with another cut in the cash rate to -0.5% next year, most likely in February."

The Reserve Bank continues to lay the groundwork for a potential negative OCR next year, saying further rate cuts "remain under consideration".

Tags: Lending OCR OCR forecasts RBNZ Reserve Bank

« OCR decision revealedOrr has no regrets on scrapping LVR limits »

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 3.09 3.25 3.39
ANZ Special - 2.49 2.69 2.79
ASB Bank 4.45 2.49 2.59 2.65
Bluestone 3.49 3.49 3.49 3.49
BNZ - Classic - 2.49 2.69 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.09 3.29 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
Lender Flt 1yr 2yr 3yr
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online 2.50 1.99 2.35 2.45
Heretaunga Building Society 4.99 3.50 3.40 -
HSBC Premier 4.49 2.25 2.35 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.45 ▼2.45 ▼2.65
Kainga Ora 4.43 2.93 3.07 3.24
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.40 3.30 3.50 3.50
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.65 2.65
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
Lender Flt 1yr 2yr 3yr
SBS Bank 4.54 2.99 3.15 3.25
SBS Bank Special - 2.49 2.65 2.75
The Co-operative Bank - First Home Special - - - -
The Co-operative Bank - Owner Occ 4.40 2.49 2.69 2.79
The Co-operative Bank - Standard 4.40 2.99 3.19 3.29
TSB Bank 5.34 3.29 3.29 3.59
TSB Special 4.54 2.49 2.49 2.79
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 3.09 3.29 3.39
Westpac - Offset 4.59 - - -
Westpac Special - 2.49 2.69 2.79
Median 4.55 2.94 3.07 2.80

Last updated: 23 November 2020 12:23pm

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