It would be highly amusing if Bollard, in his attempts to further penalise savers and reward debtors, has now lost control of the short term part of the rates curve (he lost/never had much control over the long term end).

I guess you could simplistically rationalise it like this.

a) Our banks can access money overeseas but the overseas lenders will only lend at rates considerably higher than where Bollard would like them to be (and the existing longer term rates reflect this).

b) That leaves domestic sources of funding for the banks to re-cycle. There is only a limited pool of this in the form of depositors/savers money and they have responded to Bollards attempts to slash their income by jumping into into corporate bonds and other related vehicles (and in some instances by the look of things investment property bought with cash). Billions has been locked away in these vehicles. Of course this pool has was also depleted last year anyway by the failure/suspension of various Finance company entities - this pulled probably close to $5 Billion out of circulation.

What will be fascinating to watch is how quickly mortgage interest rates have to jump as soon as inflation re-appears/recovery takes place. If longer term rates are now on their lows at just below 7% with an OCR at 2.5% what does that tell us where they will be once Bollards hyperstimulatory regime is forced into reverse? Folks loading up with extra mortagage debt now had better calculate whether they can sustain that debt with double figure mortagage interest rates 2/3 years out from here....

Recovery appears to be on track for the second half of the year as evidenced by rising commodity prices, especially copper,and rising NZ export prices. the Baltic Dry index is also showing signs of life.The Nz dollar and aud are well off their lows.Bollard got it wrong on the up and he,s got it wrong again. When he recently talked about the looming inflation problem down the track, then he was closer to the mark. If he keeps interest rates down at the short end for 18 months I for one will be extremely surprised.

LOL POP - that smacks of desperation. If this is indeed the low point in mortgage rates, with the reality that rates can only go UP from here then that is a massive negative for the housing market. Rising interest rates are a profound negative for any housing market (and judging by your post you know that full well). The 'bounce' in sales volume in Feb/March (and probably to a more limited extent April) is purely a knee-jerk response to Bollard slashing rates. Now it seems Bollard may be a busted flush in his ability to force rates lower. Now what happens?

Pres. of Property said "i suggest if you want to buy, or need to or prefer to, and you can truly afford to, then for goodness sake grab a bargain while they are there. nothing is more disappointing than having to pay more than someone else that picked up a cheapy before the sale was over, or to find out sale stock is strictly limited and no rain checks apply."

I would imagine being underwater on your mortgage and worried about your continued employment would be pretty "disappointing". All comes down to perspective I guess.

Fast forward to mid 2010 and the headlines will be;

'another 4000 real estate agents leave the industry'

This is all make believe.

RBNZ make believe thay can control interest rates to the public/debt junkies.

Kiwi borrowers make believe RBNz can call the shots and tell Banks what to do, just as US Fed believes they can force interest rates down by QE. (by the way, it seems 30yr US interest actually started going up WHEN Fed started QE)

Banks make believe by cutting less than RBNZ cuts and hope borrowers don't notice. (an claim they are being nice by even cutting if anyone complains)

In the end it's the market that decides...and the market says there is no more money to be lend....less supply ....higher price.

It's time Reserve Bankers stop playing make believe.

Matt- Kapiti

Its hard to see why increasing inflation would push up house prices, since the interest rates must go up in response to rising inflation. What I think you mean is that most prices go up in times of inflation, so presumably that includes house prices?

Well, in the mid 1970s, after a housing boom, inflation was about 15 - 18% pa. For 3-4 years, house prices didn't change at all in nominal (dollar) terms. At the end of the period, house prices were the same as before - but actually down about 30-40% in real terms (ie, what the equivalent amount of money would buy elsewhere).

Pres of Property: Hilarious! "The threat of rising interest rates pushes up property prices"! Now I've heard it all - really creative thinking, in a strange way it almost makes some strange sort of sense! On some planet far away, perhaps. Good one, mate!

clarification, yes folks, i understand the economics, although i can see why you could sense otherwise, but i am pressing the point of the thought of the threat of increases in mortgage costs = sense of urgency for time to act, if not frenzied, at least cautiously...

many a people have been putting off buying until the time is right, and that time may just feel like it has arrived, don't you think???

i am personally keeping a quiet eye out on behalf of the family trust for an upgrade for the home we currently occupy, whilst thoughtfully considering any cashflow positive investment properties i happen to stumble upon in the process for a property investment company i operate.

i do not consider that overly silly, as long as it all stacks up.... i just know at some stage i will not be able to be so time casual as the good ones will soon go quick. some properties sit for 100 days or more unsold, some are listed and sold on same day, that is where we get average days to sell a house from... it is the good buy home purchases verus the good bye money purchases that determine those statistics

There are couple of ideas banking system should consider to improve it for customers:

1. Interest margins should be based on risk. I'm a sensible customer, I work hard to pay off my mortgage and I don't own flashy consumer goods I don't need etc. There are other people like me, I don't see why we should have to pay an extra margin to cover bad debtors. Customers like myself should receive a discount, and at risk customers should pay a premium.

2. Customers should be able to change their bank as easy as changing their power company (even to the point splitting their mortgage over different financial intuitions). What stops this working is solicitors fees and bank fees for setting up a new loan. IMO changing the financing on a house should be as easy as any other financial transaction (like buying shares, FX, commodities etc).

Also as another idea, although I'm not sure what the effects would be though "“ what would happen if good mortgage holders were rewarded in bank equity? That way some of the profits could come back to mortgage holders. Personally do not like that idea, because I would rather have the two transactions separate (I'm not a fan of package deals), I'd rather buy the shares myself on my own time. But for say non-publicly listed banks how would it go?

I agree with Bernard, I think too many ppl have rushed to fix, what's left is fairly minimal, Kiwibank is short of funds? so cant go for more growth....now its down to waiting for one of the big ones to blink.....

Next Q is at 2.5% to 6% that's a 3.5% spread so if the banks are net only about 2% (ish) where are they losing money? or making little? CCards? ppl arnt paying off, but are they not making much as its small amounts? ie the big ticket items that get what 4% off the retailer are dropping? Its rather sad that the floating wont be dropping much if any, in which case going fixed might be sooner than I thought....

Bernard, (anyone)

what's going on here?

Firms hard hit by bank rates stance

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1057...

http://www.interest.co.nz/ratesblog/index.php/2009/05/04/have-your-say-w...

Good link Les. The Labour ministers forgot that their party introduced the guarantee scheme. I am surprised that Bill English did not remind them of this fact.

The Labour members did nothing for the hard working Kiwi businessmen and women - and that was in a time "prosperity".

Trev - my understanding is that the guarantee scheme had to be introduced, and had that requirement come about after the recent election the present government would have had to introduce it.

I agree, the last government could have and should have done a lot more for business, and it does seem rich, in my opinion, that the present opposition should fire at government as they do, sure it's good that they challenge, and we need that, but let's not forget it's only a matter of months since they were in power, and after a long period of time and in what were perceived as prosperous times. So Bill E et al have their hands full dealing with a lot of problems that originated with the opposition. It's not as though Bill E is ignorant of the problem business lenders have at present and is trying to do something about it - we'll see. The point is, there is a problem and it needs a solution.

Yes the previous government could have and should have done better. There were 135 odd submissions to the select committee on monetary policy and some great ideas on solutions but Labour did nothing. Partly I suspect as the sting had already gone out of the inflationary bubble and no one wanted to be accused of causing a recession and partly because we (both major parties) seem to pander too much to the opinion of foreign bankers. It is a sad fact that our current monetary policy is a license to print money for banks as soon as inflation gets going.

We know that Dr Bollard wants more tools to deal with inflation and has hinted that includes CGT, we know that Treasury wants more tools (and likes CGT) and we know the productive sector wants to break this inflationary cycle that kills the real economy and wants a level playing field with regard to tax incentives for property investment . Sooooo why doesn't it happen? Ponder that thought?

I am sure that both sides of the house know we need it (if not let's sack Treasury Officials and Dr Bollard) and so we need a bipartisan approach. I am sure all it takes is one deep breath from Bill English and its done.