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'A stunning decision' - RBNZ delivers huge surprise with a 50-basis-point cut to the Official Cash Rate; banks quickly react with mortgage cuts; dollar drops

'A stunning decision' - RBNZ delivers huge surprise with a 50-basis-point cut to the Official Cash Rate; banks quickly react with mortgage cuts; dollar drops
No more dove from above? The move from an 'overly dovish' stance by the RBNZ and Adrian Orr is welcomed by Roger J Kerr.

The Reserve Bank has delivered a huge surprise by cutting the the Official Cash Rate to 1.00% from 1.5% and says the lower rate was needed for it to continue to meet its employment and inflation objectives.

The Kiwi dollar immediately fell more than a cent against the American currency, from US65.6c to US64.3c.

Banks were quick off the mark with cuts to their mortgage rates.

A cut to the OCR was widely expected - but not by as much as was delivered.

"This was a stunning decision," Westpac chief economist Dominick Stephens said.

"In the history of the OCR, the only times the OCR has been cut by 50bps or more have been after the 9/11 terrorist attack, during the GFC, and after the Christchurch earthquake.

"We are very surprised that the RBNZ decided to cut 50bps in today’s environment."

Stephens noted that there was no signal in the announcement about the likelihood of further cuts, and the published OCR projections bottomed out at 0.9%, implying only a small chance of a further OCR cut.

"The RBNZ appears to be trying to get ahead of the curve with today’s move."

The cut now takes our key interest rate down to the same as that in Australia - at 1%, though the Reserve Bank of Australia is widely expected to cut further soon.

A late decision?

And while the RBNZ has given no indication as such in its commentary, the decision to make a 50 basis point cut appears to have been a late one.

The full Monetary Policy Statement that accompanied the review gave a forward projection of the OCR for September 2019 of 1.4% - which suggests that at the time the document was put together a double cut to the rates was not being contemplated.

But developments on the global stage this week, with the ratcheting up of trade hostilities between the US and China, may have pushed things over the edge. 

ANZ chief economist Sharon Zollner said a 25bp cut on Wednesday was "baked in" by both the market and analysts, but the proactivity of the RBNZ policy committee that was evident in May [when the OCR was cut to 1.5% from 1.75%] was to the fore again, "choosing to front-load the move and get maximum bang for their buck".

"Things could turn to custard before the September OCR review in seven weeks, but a lot of custard looks baked in already at this point," she said.

"...There are two schools of thought when nearly out of ammunition: hide behind a rock and preserve it, or charge. The RBNZ clearly falls in the latter camp."

Zollner said the "bold move" would result in lower retail borrowing rates that should support investment and the housing market, "but there will be offsetting impacts on the incomes and therefore spending of savers, and one also can’t rule out a perversely negative impact on confidence of what might look to some like a crisis-type response".

'Didn't see that coming'

BNZ's head of research Stephen Toplis was typically forthright: "Boy, didn’t see that coming!  In hindsight, probably should have!" 

He said "yet again", RBNZ Governor Adrian Orr (and his Monetary Policy Committee) had shown that they want to get “in front of the curve”.

"Rather than cut 25 basis points, and indicate that another rate cut was likely, they decided to not pussyfoot around and, instead, throw everything at the market at once. Thank goodness the employment data was so strong yesterday or goodness knows what they would have done!"

He said the biggest concern is that the Monetary Policy Committee continues to believe falling interest rates will drive growth higher in the same way that they have done in the past.

"In particular, they remain fixated with the idea that business investment will respond to the cuts that have now been made.

'Not convinced'

"We are far from convinced. It is our view that the cost of debt is not hindering investment activity in the slightest.

"And we consistently get feedback from business that lower interest rates will not foster heightened investment activity. The fact that input costs are rising (they will be rising more now) in an environment where they can’t increase output prices is resulting in downward pressure on profits. In addition, political and geopolitical concerns both here and offshore are creating significant uncertainty.

"Together these factors are what are crimping investment activity and a cut in interest rates is unlikely to solve the problem."

ASB chief economist Nick Tuffley said even after "the surprise size" of the cut, "the risks remain skewed to an even lower trough than the current 1% OCR". 

"We forecast a further 25bp cut to 0.75%, in November.  Global risks are moving relatively quickly, based on the past week’s US-China tensions, and the added Brexit uncertainty.  Domestically, there may be more labour market slack than is evident by purely the (low) unemployment rate – and with that the scope to drive the economy, employment and inflation pressures harder," he said.

This is the full statement from the RBNZ:

The Official Cash Rate (OCR) is reduced to 1.0 percent. The Monetary Policy Committee agreed that a lower OCR is necessary to continue to meet its employment and inflation objectives.

Employment is around its maximum sustainable level, while inflation remains within our target range but below the 2 percent mid-point. Recent data recording improved employment and wage growth is welcome.

GDP growth has slowed over the past year and growth headwinds are rising. In the absence of additional monetary stimulus, employment and inflation would likely ease relative to our targets.

Global economic activity continues to weaken, easing demand for New Zealand’s goods and services. Heightened uncertainty and declining international trade have contributed to lower trading-partner growth. Central banks are easing monetary policy to support their economies. Global long-term interest rates have declined to historically low levels, consistent with low expected inflation and growth rates into the future.

In New Zealand, low interest rates and increased government spending will support a pick-up in demand over the coming year. Business investment is expected to rise given low interest rates and some ongoing capacity constraints. Increased construction activity also contributes to the pick-up in demand.

Our actions today demonstrate our ongoing commitment to ensure inflation increases to the mid-point of the target range, and employment remains around its maximum sustainable level.

Meitaki, thanks.

Summary record of meeting – August 2019 Statement

The Monetary Policy Committee agreed there was a need for further monetary stimulus to meet its inflation and employment objectives.

The Committee noted recent economic developments were broadly as expected and employment was around the targeted maximum sustainable level. The Committee was pleased to see that the labour market data held up relative to expectations in the June 2019 quarter.

However, the Committee noted that inflation remains below 2 percent and the outlook for employment and inflation was softer. GDP growth had slowed and global conditions had weakened.

The Committee agreed that the balance of risks to achieving its consumer price inflation and maximum sustainable employment objectives was tilted to the downside, although members placed different emphasis on the sensitivities to these risks.

The Committee noted the decline in long-term government bond yields to historically low levels. Financial market participants expect both inflation and policy interest rates to remain low globally for a prolonged period. Some members noted that survey measures of short-term inflation expectations in New Zealand had declined recently. Others were encouraged that longer-term expectations remained anchored at close to 2 percent.

The Committee agreed that weak global economic conditions could see imported inflation remain low if global growth slows further or if commodity prices decline. The members discussed the range of appropriate policy responses should imported inflation persist at low levels.

The Committee welcomed the recent employment and wage data but noted that private sector wage growth was subdued despite businesses having difficulty finding labour. The members discussed that the recent slowdown in growth could dampen wage inflation by more than assumed. Some noted that if cost pressures remain elevated, firms may pass on costs to consumer prices by more than assumed, while others viewed the wage pass through as a natural consequence of a tight labour market and policy stimulus.

The members discussed the recent slower domestic GDP growth and the impact of slowing global demand on New Zealand through the trade, financial and confidence channels. The members noted that heightened global uncertainty was reducing investment and suppressing trading-partner growth. This highlighted the risk of a larger or more prolonged slowdown in global economic growth.

The Committee noted that additional stimulus from central banks had underpinned growth and reduced the likelihood of a more-pronounced slowdown. However, some thought that even with support from monetary stimulus, considerable economic and policy uncertainty could see global growth continue to decline. Other members noted that the easing in global financial conditions since the beginning of the year, or a shift in political environment, could lead to a pick-up in global growth over the next year.

The Committee acknowledged the importance of additional spending from households, businesses, and the government, to meet their inflation and employment targets. They also agreed that additional monetary stimulus was needed. The members discussed several important uncertainties.

The Committee noted that low business confidence had dampened business investment in 2018 and had remained weak in mid-2019. The members discussed that if sentiment remained low, perhaps due to global economic conditions or if profitability remains squeezed, growth might not increase as anticipated over the medium term. The members also noted that the shift in domestic production from manufacturing towards services was also dampening business investment.

The outlook for household spending was discussed with regard to the assumed dampening impact of soft house price inflation. Some members noted lower mortgage rates could contribute to a stronger pick-up in house price inflation, which could support consumption. Other members noted that house price inflation could remain weak, for example if net immigration continued to decline relative to the number of new houses being constructed.

The Committee noted that fiscal assumptions embedded in the projections were consistent with Budget 2019, which included adjustments to reflect that government spending takes time to increase. The members discussed that fiscal policy could be more supportive if future announcements incorporate more spending or if the impact on domestic demand is larger than assumed. This view was balanced by the impact of any increase in government spending being delayed, for example due to timing of the implementation of new initiatives and difficulty finding labour.

The Committee also discussed the contribution of monetary policy to the projected pick-up in growth and inflation. The members noted that estimates of the neutral level of interest rates have continued to decline and this was consistent with generally lower interest rates over time. Members also noted the Bank’s current assessment of analysis on the transmission from monetary policy to growth and inflation. This suggested that the overall strength of these relationships was little changed in the environment of low interest rates.

The Committee agreed to continue to monitor and assess the impacts of monetary policy, including the transmission through to retail interest rates.

The Committee reached a consensus that, relative to the May Statement, a lower path for the OCR over the projection period was appropriate. The lower OCR path reflected the economic projections and the balance of risks discussed.

The members debated the relative benefits of reducing the OCR by 25 basis points and communicating an easing bias, versus reducing the OCR by 50 basis points now. The Committee noted both options were consistent with the forward path in the projections. The Committee reached a consensus to cut the OCR by 50 basis points to 1.0 percent. They agreed that the larger initial monetary stimulus would best ensure the Committee continues to meet its inflation and employment objectives.

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Yvil, good on ya, you called it right (over and over, per my teasing).

Things must be worse in NZ than folk know. Are Auckland prices falling more than we're aware of from limited data? Certainly the right time to throw pensioners under the bus to prop up speculators.


Yeah it's not exactly a show of confidence in the economy.


Remuera, Parnell and similar suburbs falling. Need help.

Cant be taking money away from the rich now can we...

Strange that the Auckland housing market comes with a two-speed transmission: double digit price inflation and full reverse.

Yes. Suprised that NZF would allow retired savers to be set up to be crushed for having savings. Selling out savers indeed.


NZF has zero to do with Monetary Policy / RBNZ - they have to be kept separate. Interest rates are low because of the world economy, not because of GOVT here.

Yeah, the oldies can't vote themselves high TD rates to get another perk to go with their gold cards and free power (for now anyway). Give them time though, as their numbers swell they will find a way to stick it to the next generations.

Those who rely upon Bank Term Deposits to supplement their (meagre) incomes will take a bath. This includes many senior/retired citizens.

This is most unfortunate. Living standards for a significant chunk of NZers are now destined to fall.

This is something that I would expect a Labour Government to promptly address.


Expect senior citizens to be rioting and looting in protest. I jest, it cant be easy looking at next to no bank interest and potential capital losses from an overvalued s/market. REITs?

How can the share market be overvalued when you can still invest in a power utilities company and get 4.5% dividend plus imputation (100% in some cases).
Term bank deposits were only 3% and heading further south after today most likely.
I'm also not sure about this, but shares may also be insulated from the OBR, perhaps someone can answer this.

Earnings drop from higher input costs (wage costs and lower exchange rate), falling revenues from lost consumer confidence. We all know that sharemarket values here and overseas are peaking, they dont stay at record levels forever. If I was in a retirees position and age in life I would not want to sink my savings into risky assets such as shares. That's why I have suggested REITs, have heard they are a good option but haven't personally invested in them myself (too much else happening for us)

Oldies want 10% returns with zero risk, oh how they long for the good old days of Hubbard and SCF.

Is Orr a closet National ?

Geez !!!! - how do I tell my 85 year old mother (that hasn’t a clue how the world works) that the $600K she’s got sitting in a bank, which has a BBB credit rating that after inflation she’s getting a return of sweet FA, (not to mention that she could soon be paying the bank to keep it there) that being a buyers market she’d better off buying a rental property and get a 7-8% yield. Oh well, there goes my inheritance.

Has anyone seen the latest report from the IMF that explains how negative interest rates will work- ie removing cash from the system and having customers pay the bank to keep their money?

Negative rates mean banks may start giving out interest free loans ?

Indeed, this is 1 move closer to negative interest rates when we will have to pay the banks to hold our money. This could include everyday banking accounts that salaraies are paid into as well as those with savings! This is not a good move.

Clearly the elderly have no value now!

Forget who built and fought for this country, they are just excess to requirement...


They get their automatic benefit no one else is entitled to as well as free power and a gold card. Be thankful for what you got I say!

Well, I think it's "fair" to say NZ now has negative interest rates in relation to the RBNZ's already VERY generous measure of inflation.

Thanks for the recognition, RS much appreciated, respect

Thumbs up. We have good back'n'forth here on Interest. Makes it a cool place.


Not surprised at all. There's a whole host of domestic and global headwinds.
Of course, I don't think it will achieve much...

I dont know if my friend who has a property for auction would agree with you. Skyrocket!


Yields will drop for properties bought on yield, with more to follow. Same reason the power company shares have gone up.

I think we can expect 3.49% from the banks for 2 years. Pleased I held off on my August refixes


Flogging a dying horse ?

What did you expect when people voted for 3 loser parties over a party that had the country humming along nicely.
If you aren’t into buying property now if you haven’t before then you never will own.
Suggestion is buying in the paradise of Christchurch


Yeah, nothing at all to do with the last decade or more's reliance on foreign capital inflows, twice the OECD rate of immigration, and selling houses to each other for more and more rather than building productive enterprise. Nothing at all. Nothing to do with the global response to the GFC of pushing any reset down the road for others to deal with either.


Nah it's all the COL's fault, don't ya know?
The fact that the centre right is in charge of Aus's floundering economy, just coincidence.
Don't let objective analysis get in the way of rants from Nat Party life members.

True Rick, but don’t overlook the creation of our corporate giants, Fonterra, Fletchers. All chums together in the corporate box with that spankingly good corporate NZ government that Key and his cronies dreamed up. And as the Aussies would describe it , all now white anted. Was that not the fabled “Rock Star”economy? Looks like it was in the Gary Glitter style!

The dream continues.

"Paradise of Christchurch"... Last time I went there I tried driving across town at 4pm and got stuck in traffic for 90 minutes. Paradise lost.

Sadly, the charm it once had lost through the EQ too

Aranui ... New Brighton ... Woolston .... oh yeah . .its paradise all right : ha deee haaaaaaaa

It is stuffed. No sense of the realities of what the citizens basically need. In our street. One house pays rates $3900.00 pa and its neighbour $8000.00. Same sized house, same area of land. Both have exactly the same services. The latter is an EQ rebuild. Somehow that means that that party can afford to pay twice as much for those same services. There it is. Christchurch exodus one would think is on the horizon.

On roughly what property value are the rates $8k?


Crickey that’s a shocking figure... some friends of ours owned a house in remuera in central Auckland and their rates were $10k on a $5m house!

Well there is another one not too far away value $2.45mill rates $14000.00. Of course this revenue is needed for cycleways for non existent cyclists. Statues to collect the river weeds. $ millions to add about 1.5m width to an oceanside walkway that doesn’t connect anywhere. While some good citizens are just waiting for a relatively pot hole free street to drive down and noxious plants run rampant on the Port Hills and the grass there is way too long again. Christchurch City Council is just a joke, must think priorities are something to do with a monastery.

Auckland is a tad underrated, so to speak.

To be fair you'd likely get the similar amenity from a $1.4M house in Chch as you would in $5M home in Auckland...

No from what I have seen, Remuera, Mt Eden, Mission Bay offer a heck of a lot more amenity than Fendalton, Merivale or Sumner. Actually there is no comparison, no comparison at all in terms of presentation and maintenance.

Yeah, damn those people who voted. It just shouldn't be allowed.

"paradise of Christchurch" err no thanks. last time I was in CHCH, I got abuse by a group of No 1 haircut dudes in black jean, black T shirt wearing cheap Warehouse boots yelling at me to "Go Home, you *@#$## Asians"! Luckily, I was on my way to airport to catch my flight home..
"paradise of Christchurch".. my as*!

This does not represent the whole of Christchurch. You do realise that yeah?

Yeah I do know that and in the same token not all of Christchurch is paradise!

But the experience is so horrid that it might as well be

This horse needs a break. The Gold and Silver horses are pacing along nicley.


Plainly they are worried.
Interesting they cut when RBA did not, and by double that expected.
Now see how much banks pass on. I expect it to be less than 60%
Housing market unlikely to be goosed much by this attempted stimulus.
Currency devaluation attempt?
No doubt real estate "experts" (NOT Agents) will be spouting about how it's going to raise prices and sales.
Interest rates have been falling this year but sales have fallen, not risen.
3m sales figures for Auckland are more down than the 6m were. Same in Wellington and Christchurch.


There is a school of thought that after a certain point, the actual impact of monetary policy is the exact opposite of what is intended by the central bank. This move sends a signal that the RBNZ has some dire predictions about the future of the NZ economy, so people and businesses may actually save more and spend/invest less.


It certainly has that cold and windy feel to it. Apt to make one buckle down and spend less rather than have the confidence to go out consuming willy-nilly.

I hear there are already ominous signs of the elderly retirees having to ditch their medical insurance. Southern X about $8400.00 pa for specialist and surgery care for a couple. Life saving investments will not very often stretch to that now. So that segment, at a time of life when health issues tend to escalate for obvious reasons, will descend in increasing numbers on the public health system.

One wonders how this will flow into voting patterns. Having spent years voting along the (admittedly rather nominal at best of times) lines of lower taxes and less spending on government services...Waiting lists for medical care will become a cause of concern.

I think waiting lists are already a concern, very much so indeed, not just this government though and they inherited a bit of muck didn’t they.Like you my traditional criteria for voting looks to irrelevant now, even obsolete. I cannot bring myself to vote Labour after the Clark/Cullen blatant tax grab, but I did vote for Ruth Dyson because she deserved it, a stalwart tireless MP for her constituents. Now she is departing. So next year? McGillicuddy Serious Party can you hear me.

Funny how people think taxes going up isn't so bad once they retire eh... "Those dogooders have been jumping up and down for decades saying we need to raise taxes to pay for the growing cohort of retirees... now that I'm retired I thoroughly agree... Don't be taxing wealth now mind..."

It's definitely making me think that keeping our current house and small mortgage may be the way to go, rather than the upgrade we've been considering...

Yesterday's QES and LCI data made it clear that most of the remuneration increases are coming from mandatory minimum wage hikes; so it's safe to say the higher percentage growth is partly due to a low base effect. I doubt too many people will be looking to take on a large mortgage debt in the current slowing economic conditions.

Does the OCR actually have that much bearing on mortgage costs at this point? Yes the floating rates will come down, but isn't everyone on fixed rates, which are (a) so much lower and (b) driven by the swap rate ?

The benefit is being able to secure low risk borrowers by offering a competitive rate. That way banks can get a stronger asset on the balance sheet which can offset some of the riskier assets where borrowers have overstretched during the gold rush.

So no, it won't have much bearing on mortgage costs for those who most need a reduction in costs. They'll be stuck on higher fixed rates, and when they come to renegotiate for a lower rate, the answer will be "Actually, I think we'll keep you on the higher rate - but feel free to take your negative equity position somewhere else".

Okay that might be a bit cynical, but you can't tell me it's out of the question.


In 2009 we cut the OCR to 2.5% because of the great recession. In 2019 we cut the OCR to 1% because... everything is looking pretty good but could be a bit better?


Or because we need to keep inflating our housing bubble by shoving cheaper credit down the throats of borrowers to keep the economy going.

Sounds a bit like you are trying to make foie gras.. and we all know how that ends for the goose.

Is that an original analogy? Or did you borrow it? But I like it.

I want .5% off mortgage rates .....don't think I'll get it.

Yes, I think you will get about .3%


To repeat my view. This isn't about 'stimulatiing the economy'. It's about the bank balance sheet preservation, and that could mean someone(s) in trouble. Ultimately that will be a bank(s) customer(s). And who are the Big Candidates? Fonterra and Fletchers come to my mind, but we shall see....

Interesting theory.


Good pt. Both the Fs look Fd.
Beingate is in the news today and looks like Theo has left us some more than we knew of burning envelopes of manure on the doorstep.
Off to the mattress shop this arvo. My financial advisor says to get into metals. I think he means tinned food, fencing, locks and the like.

Don't forget AIR NZ. They also seem to be facing headwinds.

Headwinds are standard for airlines....

It’s par for the course for companies that operate flying objects, such as aeroplanes. ;-)


A new CEO should turn the plane around so they have a tailwind.

I think you're right about the bank balance sheet preservation, but this is likely about much bigger fish potentially going down in Europe or elsewhere and this has been telegraphed and the RBNZ are worried about the potential contagion that will hit our shores. The magnitude of this suggests to me that they are seriously worried.

It’s about the need for negative interest rates from the Lord and Masters the IMF!

Fonterra are looking at a huge loss from beingmate, i guess lower interest will help offset some of that loss for their owners

I think Fletchers are in more trouble than many realise.

If Fletchers hit the wall who is going to build all the infrastructure backlog which has been touted ( recently by ANZ economists for one) as the saviour of our economy going forward. China by default? They will bring their own labour force. Shane Jones will provide the money of course for infrastructure for the regions: I hear Eketahuna want their own light rail, Taumaranui want a new Bridge to Nowhere, and Greymouth want a stadium with a covered roof. Come on Shane, rattle your dags.


Up sh**'s creek with A Orr

Rather A Orr than E Ore


The economy must be in worse shape than we realise. It will not make any difference in the end. Even if borrowing more cheaply is the aim in order to stimulate demand and some inflation it still won't work . People are not silly. If people borrow they know that they still have to pay it back even of the interest rate was 0% .
The message is clear. We are heading into a recession no matter what the statistics say.This is a long game and events will unfold over the following months if not years.

I think the idea that we have to pay a mortgage back is an old school idea that is less relevant as interest rates fall. Yes the first reaction is "BS you're crazy" because it's ingrained into our psyche. Let's pause for a while and really think why we should repay a loan on a house?
PS, I think loans on any consumables, cars, credit cards, HP, and any other consumables or depreciating items are absolutely terrible, but why repay a loan on an asset that, over the long term appreciates?

you are using the old school idea that a house always appreciates in value.
ironically you used to be able to claim deprication on it because of the reverse.
it was the land that appreciates in value

True but it's terribly hard to own a house without the land beneath it

"terribly hard to own a house without the land beneath it"

Very common in some areas to own a house without owning the land beneath it. They call it leasehold.

Look at the following example in Auckland:

Moral, stay away from Cornwall park trust properties.

Hi Yvil,

Note that the DGM operate without firm ground under them. (-;


TTP and Yvil, you lot should read up about what deflation does to your debt.

Agreed, once you hit 20% LVR and lock in a competitive rate - now maybe 3.5%, why would you go any further when even a conservative investment returns 5+%?


Sorry, the case for a 50bp move wasn't made (and I'm a benefactor). I'm beginning to seriously question this regime. This is going to reignite property - Sydney is already well into an upswing now with prices and clearance rates rising (but you won;t read that here. Debt is good, saving is bad - welcome to 2019.

Which regime? The RBNZ?


I thought you were implying the govt. As we know the RBNZ are 'independent'....

I'm detecting some ego, look at me...

nah, sarcasm. I don't think the RBNZ are 'independent' at all

duh, not you Fritz - Orr!!


I'll be watching the press conference at 3pm, see what their excuse is. I don't think this will reignite property, rather allow increasing numbers of owners with negative equity to keep paying their mortgages. Better a delayed payment than none at all.

I’ve heard several commentators in Australia referring to this improvement as a bull trap. The so called recovery is on the back of a 0.1% increase in auction success rates over 1 month on very low auction figures. It will be good for sellers if the can sell on the upturn but sadly with a bull trap the gains are short lived before the market goes into a steep decline. With all the headwinds across the world I would not be betting on any significant price increases for a few years.

Sydney/Melbourne auction clearance rates are 17% higher year on year. Month on month isn't that insightful.


by Yvil | 5th Aug 19, 12:17pm
Could the RBNZ surprise the market and cut by 0.5% this week?

Make fun all you want Rick Strauss & the 17 thumbs up making fun of me on Monday, I was spot on


You can take yesterday off.


You have to admit it's not a great economic signal

Hey, I gave you fair credit right at the top of this thread.

Banter is banter.

True, thanks and respect back. I was attending a function and went straight to posting without reading other posts, knowing there will be countless posts. Thanks RS

Geez, you crave for recognition..

Not surprised at all, given the global economy is SICK..

Today's dairy drop must have pushed them to the 50bps.. not to mention log prices are in the doldrums

But who stole my thunder . by Cowpat | 3rd Aug 19, 1:35pm
An interesting image of digging a hole/well alongside falling mortgage rates.
Not sure about the RBA , most appear to suggest a hold. Should the RBNZ go 50 ?


Make fun all you want Rick Strauss & the 17 thumbs up making fun of me on Monday, I was spot on

Well done. Last success I had was the draw for the meat pack at the rugby club. That was 20 years ago.

who was calling multiple cuts late last year?

What's going to happen to house prices, Yvil?

Yeah would be interesting to hear the views of property experts like Yvil.
I suspect this will only have minor impact ,which will be psychological more than anything
Think there are further falls coming

IMO and it's only my opinion, it takes a lot of time for interest rate cuts to have an effect on property prices because most people are locked into 1, 2 or 3 or even 5 years fixed terms. Sure some FHB could take advantage of the lower rates but they still need to come up with sizeable deposits, especially in Auckland (= huge deposits). For what it's worth I think the OCR's impact on this spring will be minimal but it will support the housing market over the next few years, I still don't see a crash of 40% as some claim despite trade wars and many other world wide ailments

I agree, its just supporting the housing market....until the next election ? Would you really want to get elected after that point in time ?

In fact Labour has already made a mistake in winning and coming to power. Having to deal with all the mess left by National in the earlier 9 years. See all the troubles that are coming to light, one by one, daily That is why, JA is looking to the international arena for her next career move.

Thanks for your opinion. I agree.
So you see general flatness in the market for a couple of years?
I see a further dip of perhaps another 5%, before bottoming out

Sure the market could dip another 5% which is inconsequential for the greater economy. If the market was to drop by 40% it would be terrible and a it would no doubt trigger a deep recession

It will be interesting to see if the Banks actually lower their serviceability tests alongside the the mortgage rate cuts. If they choose to it is more likely these cuts will have an impact on prices. If they don't I suspect it will be negligible.

What is the serviceability test rate sitting at, last time I heard it was 7 percent

A lot of foreigners just saw their houses take a bath in terms of the yuan. Future declines in the NZD will create more impetus to bail out.

great, hope it goes to zero % , how much is my break fee again... oh ....


The world is now in uncharted waters with unheard of low interest rates.
We have major problems in Hong Kong, Kashmir, trade between USA and China, not to mention Brexit.
The Middle East is still in turmoil.
With all this, we must be heading for a major recession or some correction.
Interest rates are not this low because everything is booming. NZ does not have much "wriggle room" this time.
Usually a war gets things moving again and pushes up inflation. (unfortunately)
I am 75 and do not know of a time when there has been so many problems in the world.

Hi itsme - You have a decade or more on me but I know what you mean as far as troubles around the world but has there ever been a trouble free period in the world in our life time ?
I don't think so and any problem is in our face via instantaneous media so I've come to the world's always has things going on to be concerned about !
A well known economist has termed the period 1970 - 2007 as an aberation as far as inflation goes, giving this some thought opens the question what is normal or the new normal ? Inflation appears to be settling not much over 1% so that would suggest 2 year prime mortgage should be around 2-2.5% above that call it 3.5% this could well be our new normal ?
I agree the possibility of war is concerning particularly by a lunatic President looking for a diversion from bad US economic stats and a boost the military gives to the US economy !

That added 22k USD to the cost of goods Im landing this year. Inflation you say ?

That may be true but next time another country cuts interest rate, without us doing anything, it will remove X amount to the cost of your goods. Cuts are only efficient if a country cuts more than another trading country is cutting, that's why I think it was smart for Orr to surprise all and cut by 0.5%

Interesting comment about Fonterra. Could it be that Fonterra needs to withhold some of the payout to rebuild their balance sheet. This will leave farmers howling. A furthur drop in their interest payments would help greatly.


worth keeping an eye on them, someone said only .50c a share asset backing. Somehow I don't think its Fonterra, their problems are not new and will drag on for years and years. Farmers can do it tough, been there before, they can cut and cut and still get up at 4am.

For the first 20years of farming the dairy companies we supplied held retentions. It was what the industry had being built on. Then along came Fonterra - which I believe needed to happen - and no retentions until the 2007-08 season. Farmers would have survived with a 5c yrly retention until 07/08. It's paying forward for the future. Should never have stopped in my opinion. But it did so now we have to deal with it and move forward. We need to have retentions.
Hold on to your hat Belle....things may get interesting. There is a restlessness starting in ag being driven by the younger generation. Add to that - never before have ag sectors collaborated like they are now.

Remember when the OCR used to be the banks excuse for high variable mortgage interest rates ? Whats the excuse now ? ASB reports another record profit. Current CBA discounted variable rate offer 3.35% PA.


Panic time, got to be housing in AKL.

My daughter in London has friends who went into the UK govt home starter homes scheme, govt matched deposits from memory, anyway unhappy people, under water with their loan.


Holy F##k! I know that's not the most insightful comment ever posted on, but I do think it captures the moment.

Inflation running at %1.7 but perhaps thats just councils and insurance.

"Some members noted lower mortgage rates could contribute to a stronger pick-up in house price inflation, which could support consumption."

But only if the ATM remains bolted to the house....

This is not a model for economic progress.

Did they decide to cut further at the last minute after seeing yesterday's carnage on the ASX?
Or are there other figures they've seen that are causing Orr sleepless nights?
So much juicy speculation. I wish there were some chance of knowing the truth.

Reticent to label this but it bring to mind Margaret Thatcher's phrase "There Is No Alternative" (TINA.) Without fundamental economic reorganization we are locked into a credit dependency. All things must eventually end of course!

Why does credit dependancy have to end?

The Japanese could be laughing at the West. They're not. They know how serious this is.

not much left to play with, could we see QE in NZ next

You can probably sort out those with savings, vs those with mortgages , from the comments.

You can also spot those that only look at New Zealand news v those who look at the bigger picture worldwide.

lol, Gold price in NZD almost at all-time high.

Edit: Gold just passed all-time high in NZD.

Yep.It was going up anyway in US$ but that was a major boost in NZ$.

I think gold is going way higher over the next few years. I'd say the all time high in US$ (still 30% away) will be the base level for the next bull run.

This drastic cut indicates that the situation is much worse than meet the eye otherwise why ?

In November another cut and than next year another than what ?

Intersting time ahead as situation is not improving in near future and last time when we had GFC - interest rates were dropped to control the damage but now what tool will be used ?

only big tool left is government to borrow big and spend
But national ran up our borrowings so not as much room

Borrow and spend? Or print and spend?

Even centre-right NZ Herald is advocating for more fiscal stimulus....

It’s paving the way for negative interest rates.

I see gold has reached a new high in NZ dollar terms. The incentive to hold some precious metals that are no one else's liability grows as rock-solid investments like Kiwibonds return virtually nothing after tax. By the time rates are negative, the arguments against holding gold are going to look extremely weak. I imagine the safety deposit box businesses will be thriving.

Your note about Gold is true (Silver is not a rare metal at all) but be aware of the fact that government bonds increase in value when interest rates drop further. Both of them have virtually no returns, only a capital gain to be made when selling.

Govt bonds have been sold as risk free, but anyone with basic financial knowledge knows that those bonds will not be returning their current value in the next 10yrs+ by any stretch of the imagination. When we enter a dual interest rate system in the years ahead (i.e. pegged for govt debt and more market driven for the rest of us), then all the faith and confidence in govt and its debt will collapse. The smart money is already exiting govt bonds around the world.

US 30-year Treasuries have outperformed the S&P500 over the past thirty years.

Ludwig, a long dated NZ govt bond position has returned about 20% plus coupon in the past 9 months.


The cut could also be related to the currency wars? RBNZ trying to keep NZD low (which they failed to do last global recession)?

From the press conference, I'd say that's about the gist of it. Orr repeated variations of the "global low interest rate environment" about eight times, clearly the exchange rate is a key concern.

Welcome back Gingy, haven't seen you around these parts in some time!

Hey! I'm around, lurking ;-)

Commenting was soured for me some time ago but i'm still here for content!

You are wiser than most of us… (me included)

Seconded. But, hey ho, tribalisms of various ilks seem to be all the I can quite understand your reluctance to bother with 'em.


I'm the same with all social media now too. Mostly mute.

It used to be fun, now it's a minefield of ranting, extreme keyboard warriors. I enjoy a good, respectful debate and exchange of ideas but the tribalism seems to have robbed a lot of people of any skill in independent, rational thought. So many people regurgitating their tribal narratives.

Some music to accompany That sad thought: 'Which Side are You On?' - Natalie Marchant. Love the song, despise the sentiment....

Hi Gingerninja,

Totally agree with you.

Furthermore, we’re observing more of tribe walking on their hind legs.


I don't know what "walking on their hind legs" means TTP? We've been bipedal species for at least 4 million years, maybe 7 ;-)

As I say above, XChange (rate)

What about increase in the prices of petrol and other necessities we import, following the fall in currency value ?
That affects the ordinary citizen/resident more than the rich. Is the only way to avoid deflation/recession by squeezing the poor and middle class and giving to the rich and businesses ? What is the guarantee there will be more investment in productive assets to lift the boat for all ? The investment may go to buy risky assets like cryptos. The whole monetary machinations to keep the economy afloat needs to be rethought. GFC has changed the scene completely.

“What is the guarantee there will be more investment in productive assets”

Agreed – I think that narrative is dead – along with the horse they’re trying to flog.

It’s simply ended up being an exercise in propping up debt ridden, bubble priced assets that no longer belong in the real economy.

Word on the street is that Parker and govt requested an economic impact study to their proposed environmental policy. I heard it was supposed to be delivered sometime in the next couple of weeks. Has it shown a greater than expected issue in the ag sector? Though it was expected to have been delivered in April, then July also. Again word is that it is going to be 'brutual' to the ag sector in general. Ag is facing some significant costs plus base income reductions relating to climate change - I'm am not advocating that it shouldn't do anything. Add to that financial impact due to environment regulations which have not being co developed with climate change and the flow on effect for NZ Inc will be felt. A huge mistake is developing these two areas separately as a farm is a complete integrated system. Mess with one area and it will result in changes felt in another. Sometimes it can be a win win but when done on the fly, on the back of a cigarette packet as appears to have been done in this case, it could result in significant negative financial effects for NZ Inc. This govt seems hell bent on 'leading the world' in using ag biological emissions, where no other country dares to go (Jacinda reminds me of a zealot in her 'we can lead the world' mantra.) She and her government need to stop looking at 'photo and smile and wave opportunities' and 'wanting to lead the world' and slow the clock, hunker down and concentrate on not destroying the general productive economy in NZ which they are on track to do, spectacularly, if it all comes to pass.

Sorry, CO, farmers were pegged as Kulaks quite some time ago....Omelettes, eggs, but, as Orwell quipped - Where's the Omelette?

CO I think a lot of people are stuck under water. We have a smallish loan in conjunction with one of our children. Its only 600k. And there is plenty of land and businesses to back that. Yet while trying to expand, the taxes are killing us. Buying equipment, keeping abreast of paye acc kiwisaver etc.
The issues are many, rates are crippling, road user charges made another leap up recently. The depreciation rates on equipment are so low, buying everything outright has been a big mistake.
Our young fella will get there but what a battle. One of the things that frightens me for many other farmers is the cost of principal. In repaying principal in the 15 years that most rural loans require is impossible as of course that money is taxed. Not something many thought about when interest free loans were the norm. I look at the multi million dollar loans out there on dairy properties in particular. How do you pay that back when for every 100k you need to add on 28k to 33k for tax. If you want to get out you cant, there are few buyers to be found. Interesting times.

Belle Agree the issues are many and varied. Big stressor for the younger farmers, in addition to what you mention is also the uncertainty of just what Parker is coming out with. Little to no significant $ is being spent on farm system changes, or over and above, basic environmental works due to the uncertainty of what Parker will announce. Farmers, regardless of sector, are not keen to be too pro-active and spend up in case they find his announcements mean that they have spent up on the wrong initiatives, and are going to have to go out and spend even more on stuff they will be obliged to do. Potential grandfathering is also stopping folks from making system changes. Not the time to be an early adopter anymore. Fonterra is, to a large degree, the least of farmers immediate concerns in many cases.

Well, I got down to CO's piece, and there we found it.

Just another who thinks 'making money' is more important than the rather small, quite fragile little ball we all rely on for life.

Too late already, CO.

We should have listened. Instead, we chose to believe those who avoided real costs - natural capital ones. So we're in the poo. And note that this far down the thread, not one comment yet asking whether this is physically-driven limits we're coming up against, seen vaguely through a growth-expecting lens.

Interesting times

Ah pdk....just another who doesn't understand another's post. One thing ag has taught me is that the only constant is change. Resilience is the key to surviving in a future that can't be predicted. And we can't predict the future. In 1900 people would not have predicted GPS steered ag equipment. But here we have it - albeit for quite some time now.
Our catchment vision is: Mana oranga; Mana tangata; Mana ki uta; Mana ki tai; Mana Waituna
Ensuring the wellbeing of the people, the land, the waters, the ecosystems, and the life-force of the Waituna catchment and lagoon, now and for future generations through a partnership approach.
I am comfortable that I walk the talk in following that vision. Sustainability of the well being of the people includes social and economic factors.
As far as no one questioning limits - we know we can always rely on you to pop up on a thread and remind us about that. ;-)

This will hold off the inevitable house price crash for a little longer. It will pull in a few more young FHB to the ponzi scheme and will no doubt ruin their future. Hey-ho, just collateral damage to the spruikers. This move will only ensure the downward spiral is much more vicious when it kicks in. If you have a spare home sell it now before it is too late. If you have a big mortgage down size ASAP. Make your risk level immune to the coming GFCx2.0..... Twice as big as the last one!

You sound like Nic Johnson / that other guy.


Wow, they are not leaving much in the tank if things really go pear-shaped.

Who says things aren't pear shaped already?

They have plenty left, cash to -.50% and buy half the NZGB curve. Then buy council debt, then buy corporate debt, then buy RMBS. Then sell some more Kiwi (they are already short)

I thought it’s commonly held in economic circles that it takes about a 4% drop in rates to get out of recession, so I guess rates are going to or below zero, and big QE.

Any predictions on what mortgage rates will do between now and the next MPC meeting?

Any advance on Halfway to Paradise's 3.49% (2 years)?

3.25 - 3.3

IIRC, it's always been around OCR + 2-2.5%. That lender's margin has been criticized over the decades but seems to be inviolable. A Law of Financial Fysix, perhaps. So 3 - 3.5% until the next OCR sag. Or, porcine flight alert, the banksters might settle for lower margins.....
Edit - afterthought - or the margin might even go Up if the capital-holding requirements kick in. Cannot guarantee that the right-hand-left-hand comms channel is open for transmission these days....

Should go down by about 16 - 22 bps to begin with.

ICYMI, from a former RBNZ Governor.

1) "The econometric models at the Reserve Bank focus on a key driver of New Zealand household confidence and consumption: house prices.

When prices are strong, the housing market runs hot with demand and new housing investments get under way. And when New Zealanders buy a house, they also buy fixtures, fittings, and furnishings. One retailer told me he even sells more chainsaws to people with new houses - only in New Zealand! This relationship between house prices and household consumption is much closer in New Zealand than it is in other countries. As New Zealanders have few assets of other types, when house prices go up, we feel wealthier and spend freely. When we can afford it, we are inclined to put more money into home improvements, holiday houses, investor housing or property funds."

2) "You can cut rates, but that doesn't mean the banks will lend"

Extracted from "Crisis" by former RBNZ Governor Alan Bollard.

The news reports in the mainstream media of falls in residential property prices in Auckland are likely to have an effect on consumer confidence and spending in the country's most populous city.

For example, some first home buyers in Auckland are waiting for lower property prices before purchasing.

Yeah. Psychology is so important to markets. The fact that the Herald, of all places, had a front page lead on house price falls in Auckland, is a notable development. Never thought I'd see it

Well my mom cancelled her house renovations about 6 weeks ago as she was absolutely convinced that the OCR will be zero in 3 months time. Remarkable sense of economics there mom! I think my mom is feeling Japanese!

Well renovation costs may become cheaper as the construction sector declines.

I think she's got that idea in her head also. I never saw her as the ruthless type...

I don't think savers are going ot accept low rates that are much lower than they currently are. But if they move them into shares, there is a higher risk for them, especially as it is seem as overvalued anyway due to all the cash that has flowed into them. If we went to negative rates I can see old people taking their money out of the bank and storing it , and maybe buying gold. Th thing is that the government wants people to save, but then remove the incentatives to save by continually lowering rates. This is then an incentive to borrow money, which people have been doing to overcook house prices. I can't see this ended well. I just wonder what their endgame is, and how they see things tracking 5-10 years down the track.

Hi Rob,

The Government does NOT want people to save.

It wants people to spend!.


And once they have spent - then what?

More debt! Borrow growth from the future!

And the point of these cuts is….

…everyone else is doing it so we should too – just please don’t be pesky and ask “why”.

And by the way - the banking industry says “thanks”.

Foreign money is missing and someone needs to sell their investment properties?

Oh dear! This could really hinder the government's gun buy back scheme

Logic would suggest that as the police do not have a register of all the guns in NZ, there will be many people holding onto them. The guns being handed in are probably old and worthless and people are getting free money for them. A better and more logical solution would be to stop selling the ammunition for all the banned guns and if you did need it for a special reason, have a special licence issued for it.

Problem will be that psychology is now fearful. Interest rate cuts do not counter that. USA consumer credit figs show that.

RBNZ decision makers....undeniable idiots of suspect education. Money only going to the aussie banks in profit, not to help nzers. Look at ninth largest profit for ASB!!!!!!!!!!!!!!!!!! Unbelievably naive.