Wholesale interest rates fall
ASB Economists again reiterate their view that the Reserve Bank will cut the official cash rate at its next review on September 10.
The market has underestimated the RBNZ's willingness to cut further, with market pricing implying the easing cycle is over - and that the OCR will increase as early as the start of 2010. This is despite the RBNZ becoming more explicit, expressing its intention to cut the OCR further if wholesale interest rates and the NZ dollar remain elevated at then-current levels (both have subsequently increased). In our view, the NZ dollar is likely to remain strong and we have penciled in two 25 basis point cuts for September and October, although the timing of these are partly dependent on the NZ dollar.
Its weekly report also shows that that wholesale rates have been drifting down. This possibly suggests that some of the home loan rate increases of the past couple of weeks could be unwound.
For instance the five year swap has fallen in a week from 5.44% to 5.39%, which happens to be the same level it was a month ago. Likewise the two-year swap is down seven basis points to 4.07%.
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