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RBNZ cuts official interest rates for the first time since November 2016; ANZ and Kiwibank immediately cut rates

RBNZ cuts official interest rates for the first time since November 2016; ANZ and Kiwibank immediately cut rates

The Reserve Bank has cut the Official Cash Rate to 1.5% from 1.75%.

The OCR was last changed in November 2016.

This was the first decision to have been made under the auspices of the new seven-strong Monetary Policy Committee, which includes three people from outside of the RBNZ, though is chaired by RBNZ Governor Adrian Orr. The committee reached a "unanimous" decision to cut the rates.

Banks were quick off the mark to react to the change with the ANZ and Kiwibank quickly announcing cuts to both lending and deposit rates.

The Kiwi dollar, which was changing hands at just over US66c prior to the announcement, fell to about US65.7c afterwards.

The latest Monetary Policy Statement released by the RBNZ on Wednesday shows a markedly different trajectory for interest rates compared with the previous MPS released in February.

The latest MPS indicates the possibility, but not certainty of a second OCR cut by early next year. The forecast now sees the OCR bottoming at 1.4% before climbing back up to 1.9% by mid-2022.

The February MPS forecast no cuts and had the OCR rising to 2.4% by early 2022. 

What the economists say

Westpac chief economist Dominick Stephens said his interpretation was that the RBNZ is "genuinely open minded" about whether to cut the OCR again or not.

"We judge the probability of a follow-up OCR cut in June as low. August is more of a live possibility, but our current forecast is that the RBNZ will keep the OCR on hold at 1.5% until mid-2020, when it will reduce the OCR again."

Stephens noted that the OCR cut had caused the Kiwi dollar to fall, while two year swap interest rates felll 15 basis points.

"Mortgage rates have plunged over the past two months, and today’s OCR cut will cause them to fall further. We think the consequence will be an upturn in the housing market, starting in the second half of 2019."

ASB chief economist Nick Tuffley said the next move in the OCR will likely be "data dependent".

"We have pencilled in August but feel the risks are skewed to a later move.  The RBNZ’s current OCR outlook suggests a measured assessment before a further cut rather than a sense of urgency.

"We do not see inflation sustaining around the 2% target mid-point without getting further stimulus.  Moreover, employment growth has slowed, creating a growing risk that the RBNZ may not achieve its maximum sustainable employment objective."

'RBNZ stopped short'

ANZ chief economist Sharon Zollner noted the RBNZ  "stopped short of promising further aggressive action".

"We have long argued that the RBNZ would cut the OCR, but in the end they have taken the plunge a little earlier than we anticipated."

She said “one and done” [one cut and then no more] would be "a very unusual cutting cycle".

"It could happen, since the RBNZ has acted more proactively than has historically been the case, but we continue to forecast that this is just the start of a sequence of three cuts.

"Given the magnitude of the downward revision to the RBNZ’s Q1 growth outlook, the hurdle for near-term further disappointment is high, but the RBNZ’s growth forecasts further out are considerably higher than our own.

"Lower interest rates will support growth, but too-high interest rates are not this economy’s problem at present. We therefore forecast that by November the ducks will have lined up for another cut, followed by one in February. In our view deterioration in global conditions is the primary risk that could bring this forward."

'Lower rates won't generate inflation'

BNZ's head of research Stephen Toplis said while he understands the logic behind the RBNZ’s decision, "our biggest concern remains that lower interest rates will not generate the inflation that the RBNZ so badly wants to see".

"Indeed, even Governor Orr, in his press conference, noted that the lack of inflation was a global phenomenon. This being so, it is unlikely New Zealand will be able to create inflation when no one else can. The absence of inflation is bothering central banks the world over. 

"We again warn that, provided low inflation is not indicative of weak economic conditions but reflects structural change, central banks should not be concerned by this development. There is a very real risk in the current approach that when economies inevitably turn down monetary authorities will have exhausted the ability of interest rates to provide the impetus that might, at that stage, be so desperately needed."

Kiwibank chief economist Jarrod Kerr and senior economist Jeremy Couchman  say the RBNZ will monitor how much of the 25bp cut is passed on to borrowers and savers.

"If not all of the 25bps are passed on, the chance of another cut increases," they say..

"The key takeaway for financial markets is interest rates will likely fall further and hold in an even lower for longer range. And we continue to expect a volatile descent in the Kiwi dollar.".

This is the RBNZ Governor's statement:

Tena koutou katoa, welcome all.

The Official Cash Rate (OCR) has been reduced to 1.5 percent.

The Monetary Policy Committee decided a lower OCR is necessary to support the outlook for employment and inflation consistent with its policy remit.

Global economic growth has slowed since mid-2018, easing demand for New Zealand’s goods and services. This lower global growth has prompted foreign central banks to ease their monetary policy stances, supporting growth prospects.

However, there is uncertainty about the global economic outlook. Trade concerns remain, while some other indicators suggest trading-partner growth is stabilising.

Domestic growth slowed from the second half of 2018. Reduced population growth through lower net immigration, and continuing house price softness in some areas, has tempered the growth in household spending. Ongoing low business sentiment, tighter profit margins, and competition for resources has restrained investment.

Employment is near its maximum sustainable level. However, the outlook for employment growth is more subdued and capacity pressure is expected to ease slightly in 2019. Consequently, inflationary pressure is projected to rise only slowly.

Given this employment and inflation outlook, a lower OCR now is most consistent with achieving our objectives and provides a more balanced outlook for interest rates.

Meitaki, thanks.

As promised the RBNZ also immediately provided a summary of the MPC meeting.

Record of Meeting:

The Monetary Policy Committee agreed on the economic projections outlined in the May 2019 Statement in order to provide a sound basis on which to form its OCR decision.

The Committee noted that inflation is currently slightly below the mid-point of the inflation target, and that employment is broadly at the targeted maximum sustainable level. However, the members agreed that given the recent weaker domestic spending, and projected ongoing growth and employment headwinds, there was a need for further monetary stimulus to meet its objectives.

The Committee agreed that the risks to achieving its consumer price inflation and maximum sustainable employment objectives were broadly balanced around the projection. Possible alternative outcomes were noted on the upside and downside.

A key downside risk relating to the growth projections was a larger than anticipated slowdown in global economic growth, particularly in China and Australia, New Zealand's largest trading partners. The Committee agreed that the projections adequately captured the observed global slowdown and its impact on domestic employment and inflation.

The Committee noted that additional stimulus from central banks had underpinned growth and reduced the likelihood of a more-pronounced slowdown. With some indicators of global growth improving in recent months, a faster recovery in global growth was possible. However, on balance, the Committee was more concerned about a continued slowdown rather than a faster recovery.

The Committee discussed other potential risks to domestic spending. The members acknowledged the importance of additional spending from households, businesses, and the government, to meet their inflation and employment targets. However, they noted several important uncertainties.

The Committee noted upside and downside risks to the investment outlook. Capacity pressure could see investment increase faster than assumed. On the downside, if sentiment remained low as profitability remains squeezed, investment might not increase as anticipated over the medium term. It was also noted that firms' ability to invest is constrained by the current competition for resources.

A potential source of additional demand discussed by the Committee included government spending being higher than currently projected, in view of the current strength of the Crown balance sheet. This view was balanced by the impact of any increase in government investment being delayed, for example due to timing of the implementation of new initiatives and current capacity constraints in the construction sector. The implications for monetary policy remain to be seen.

Some members noted that with lower mortgage rates and easing of loan-to-value requirements, any possible pick-up in the housing market could support household spending growth more than anticipated. The Committee noted that employment is currently near its maximum sustainable level. However, it was agreed that the outlook for employment growth is more subdued and capacity pressure is expected to ease slightly in 2019.

The Committee agreed that overall risks to the inflation projection were balanced. The Committee noted the outlook for inflation is below the target mid-point for longer than projected in the February Statement.

The recent period of rising domestic inflation was discussed. The Committee noted that the near-term outlook was more subdued due to lower capacity pressure. It was also noted that cost pressures remain elevated, and that there is a risk firms may pass these costs on as higher consumer prices by more than assumed. However, it was agreed that inflation expectations remain well anchored at the mid-point of the target range.

The Committee also noted the relatively subdued private sector wage growth, despite businesses suggesting that the inability to find labour is a significant constraint on their growth. The Committee noted the limited pass-through of the nominal wage growth to consumer price inflation.

Some members noted slower global growth reducing imported inflation was a downside risk to the inflation outlook.

The Committee reached a consensus that, relative to the February Statement, a lower path for the OCR over the projection period was appropriate. The lower path reflected the economic projections and the balance of risks discussed, and is consistent with both inflation and employment remaining near the Committee's objectives.

After discussing the relative benefits of holding the OCR and committing to a downward bias, versus cutting the OCR now so as to establish a more balanced outlook for interest rates, the Committee reached a consensus to cut the OCR to 1.50%.


Reserve Bank staff: Adrian Orr, Geoff Bascand, Christian Hawkesby, Yuong Ha 
External: Bob Buckle, Peter Harris 
Observer: Gabriel Makhlouf 
Secretary: Chris McDonald 
Apologies: Caroline Saunders

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.



WOW, I didn't think they would cut in May


Goes to show how central housing price upswings are to our "house-of-cards" economy that the wider economy performing seemingly alright isn't good enough for RBNZ to hold the rates.

Yep, I must have missed it when the RBNZ used out of control house prices as justification to raise rates.

The link between house prices and spending has always been understood and has always been a major factor in setting rates.


Oh right, a "major factor" you say...

Just squinting at this list:

Not a single rates rise since 2014 despite house prices increasing by ~40% (CAGR of ~7%) whilst wage inflation was ~9% (CAGR <2.0%).

Even stories like this didn't force their hand:

But oh... a slight slow in the market and it's time to come to its aid.
They have created rank moral hazard in housing and are still trying to keep the party going.

Id suggest that the moral hazard horse bolted long ago. It is a major factor and they implemented special rules to try and arrest the boom.

If they are so concerned then why not have measures that act in concert with rate decreases?

E.g. Drop the rate but at the same time either:
- Increase LVRs; or
- Make banks hold more capital against Residential Real Estate lending?

They also advised against implementing DTI restrictions - they could have implemented a DTI last year and steadily reduced it over time, if they were *really* concerned about housing.

Yes, moral hazard bolted a long time ago, but they have hardly made an effort to arrest it.

Evidently in the reserve banks infinite wisdom they want to support spending. At least they are ahead of the curve which is a fun divergence from the past.

Yes except, in this cycle, loose monetary policy has overwhelmingly gone directly to inflated asset values (and credit growth) rather than increased consumer spending and wage inflation.

Hmmm , yes.
Perhaps more importantly, investment has not taken the opportunity to seriously invest in the increase in capital goods that may either have provided more impetus out of the bottom of the curve or at least given us some buffer, as we attempt to manage ourselves out of the energy, population and environmental pickle we can barely pull our collective heads out of the sand to face.
In some ways I just say Bugg£r.. What can't be repaid, will not repaid.
And it is too late for a good old fashioned Bonfire to let it all burn down


Hi Cmat.
That was when we were in the Hakuna Matata phase of the cycle where CPI doesn’t factor in gambling based housing inflation/speculation and rampant credit growth in the CPI calculation.
We’re now in the Tane Mahuta phase, where If we don’t get the credit tap flowing again, essentially we’re ‘rooted.’
There is a team at the RBNZ all training for their helicopter pilot licenses to carry out the next phase of the central bankers playbook.

Rofl some truth in that


My word, the aroma of that cheap credit is wonderfully intoxicating.......

Meet you outside the Audi dealership, old chap.


That's the way chap, book it up on tic. It'll be worth more tomorrow.

Riley Kestrel or Elf, mate. Forget the Audi. Buy a car and a hobby.

Me neither... No complaining here though as my mortgage floats in January.

Computer says cut. I'm very surprised though.

The modelling is not as sophisticated as you think it should be. Still requires humans.

Inflation < 2% ∴ ↓
Inflation = 2% ∴ -
Inflation > 2% ∴ ↑

BLSH, I think this cut has little to do with inflation, actually I believe (against the majority belief) that if CPI was to increase to 3%, the OCR would NOT be increased.

If house prices were rising and inflation was 3%, I think they'd cut hike . But if house prices were flat/falling and inflation was 3%, I might agree with you, not sure though.

BLSH, "If house prices were rising and inflation was 3%, I think they'd cut"

This gem of methodology you are applying suggests the Global situation is so dire that the RBNZ would have cut no matter what. Um-no, it's not that bad - yet.

He meant hike, its a typo.

Yes, typo RP, a thousand apologies.

Inflation, or expected inflation?

I doubt you have any idea what you are talking about.

You're trying to start the same argument you got into with HeavyG a while back. See link below. Surprising that you'd try it again - if you read the entire thread you'll see you ended up embarrassing yourself quite severely.

I invite everyone to read that thread. No embarrassment on my part.

I suspect you're on the spectrum, so aren't embarrassed when you should be.

Please, tell me.
Why should I be embarrassed for simply pointing out to you and HeavyG how what you were proposing was both naive and silly?

Argument from authority. You are no different than a religious zealot.

God is special = do not question God

RBNZ is special and uses special models = do not question RBNZ or special models

"The modelling is not as sophisticated as you think it should be."
In what way?
I don't think you've ever coded CGE models, if you are saying that. Quite honestly, DSGE modelling is some of the most complex modelling there is in any scientific discipline.
It requires humans to code, and periodically update parameter inputs. But on the most part remains untouched, along with the more conventional econometric tools.

It requires humans to feed it data and scenarios, that's about it.

I don't think you've ever coded CGE models, if you are saying that.

No I haven't. But coding doesn't represent the complexity of central bank models to determine interest rates.

Quite honestly, DSGE modelling is some of the most complex modelling there is in any scientific discipline.

Are you trying to say that the modelling used by central banks is more complex there is? Interested to know more. Where can I find more information?

"No I haven't. But coding doesn't represent the complexity of central bank models to determine interest rates."
True. But it reflects the complexity of the CGEs - which was what I was essentially getting at.

Look up NZSIM and KITT from RBNZ.
There should be discussion papers on both.

They shouldn't be using equilibrium models. Anyone can download a copy of Minsky from sourceforge, and that would be more accurate.

Okay Steve Keen.
Have another go at selling your software to the RBNZ.
Unfortunate for you that pretty much everyone who saw the presentation and read Keen's notes last time he presented it here universally rejected it as a viable platform.
Also unfortunate that is the consensus among pretty much every macro guys that look into it.

I didn't realise he was trying to sell it. I do recall him saying he got a frosty reception at the RBNZ though. Apparently nobody believed him that changes in private debt added to aggregate demand. Someone accused him of double counting. The world seems to be coming around to his way of thinking though.

He didn't get a frosty reception because of the fundamentals of what he was proposing. Everyone was fine with the premise - pretty much no one objects to the idea that endogenous money has an impact on aggregate demand. It was that Steve Keen doesn't have the ability to actually formalise his ideas about it coherently/logically.

And, no, everyone is not coming around to his way of thinking. Everyone is coming around to thinking of non conventional monetary policy. Perhaps that involves aspects of Minsky. However, I doubt it involves Keen's Minsky model(s). This is why I laugh when people say economics is the dismal science (which, arguably, it is) and Steve Keen is it's only savior. Keen's work essentially sets the benchmark for dismal.

Poor old Steve Keen, It sounds like you have an axe to grind. He seems to articulate his ideas pretty clearly to me, but then again what do I know, I'm a scientist not an economist. I think the concept of Minsky is beyond reproach though. Its not a model per se, but a method of modelling using time dependent differential equations and double entry book keeping. What could be wrong with that?

I don't have an axe to grind. I just can't respect anyone who thinks Steve Keen is the macroeconomic messiah he purports himself to be.

Minsky is not beyond reproach. The fact that there is no consensus on the true formalisation of Minskian ideas into a structural model is proof of this.
Coming from a scientific background, it is weird that you seem to have no issue with modelling something for which you have no underlying unifying theory for how it works.

The software has nothing to do with Hyman Minsky, it's just named in his honour. You can use Minsky software for anything, pendulums to fluid dynamics, (although its clunky to the point of being unusable). You don't need to be an economist to appreciate beauty and correctness of Keens approach. I'm not saying his models are necessarily correct. I'm saying that method of modelling is correct.

The software was developed primarily based on Steve Keen's Minsky Monetary Model. FYI - One that has been robustly debunked..
It isn't just named in his honor. It is named that because it (supposedly) incorporates the FIH of Minsky.

Yes it has other applications in calc, but it's primary objective was to model Keen's Minsky Model.
Again. How can you possibly know the modelling is correct if you don't even know what the structural form is?

I'm sorry, but you're wrong. Minsky is just system dynamics software. It's no different to simulink. Minsky uses the Runge-Kutta 4th order method to discretise time, and approximate solutions to ODE's. The only thing Keen added (which is pretty cool) is the Godley table to keep track of financial flows.

We are just talking past each other at this point.
Yes, Minsky is just a crappier version of simulink.
It derived it's name as it was primarily developed from Keen's Minsky Monetary model work. He was building disequilibrium models and wanted to build awareness of this sort of thing to the economics world. This is how Minsky software started.
Yes. It uses a Godley table which Keen proposed in his Minsky model. No, it's not really that cool from an economist's perspective - it's just a stock-flow tool essential in Keen's Minsky Model. And all formal Minsky Models, actually.

So in summary Minsky is he only system dynamics software in the world to incorporate strict accounting rules for financial modelling, and best of all it’s free! Dynamic modelling is vastly superior to DSGE modelling. Steve Keen is a legend who pretty much turned the macro modelling word upside down, to the point where central banks like the Deutsche Bundesbank and BOE acknowledge his view of endogenous money is correct. We’ll have to agree to disagree because I feel we’re reached this point

Haha. Okay. You're not really qualified to say Steve Keen is a legend. Until I pointed it out, you didn't even seem to know what his Minsky Model was. Maybe you watch his twitter feed, donate to his patreon or love his voice even more than he does himself. But that doesn't really qualify you.
I'm not saying DSGEs are superior to dynamic modelling. And neither can you, really. Because, again, you have to know what you are modelling to start with. You say you are a science man, but you are proposing a hypothesis that you can't test.

Steve Keen didn't turn the macro world upside down. Nor did he come up with the notion of endogenous money supply and nor has he actually produced a workable model of endogenous money. The central banks have expressed that Post Keynesian monetary ideas may have some merit. They have not outright endorsed them like you (and Steve Keen) like to purport. This is because, well, again, there are no robust macro models of endogenous money supply.

So, like you say, lets agree to disagree.

Sure, pay the bureaucrats if it makes you feel better.

BLSH, maybe now's the time to revisit your New Year 2019 prediction "Residential Property: Auckland HPI: +1%, Auckland Median 0%"

Following today's news I'm more inclined to double down.

Stubborn? How's this the ingredients for a credible forecast?


I'm not surprised they cut. It's not good they're spending the ammunition when the risks of another GFC and/or a prolonged global deflationary slump are rising. It's obvious the RBNZ see downside risks are increasing.

Speculators, I would take this as a sign that it's high time to stop using others money. In a deflationary environment, your debt will only rise in value! TOAST

Good on ya RP, always looking for that silver lining.

What's the point of using others money in the hope of attaining it when I already have it? In my younger years, I worked my ass off so I wouldn't be a slave to debt. I always saw the silver lining.

Because TD rates are so low and will get lower. All those cruises you and the missus planned on the back of mortgage holders are slowly disappearing.

Yeah, nah. Believing rates would fall, in Jan 2018, I negotiated a special rate (4.26%) paid monthly. The interest more than funds a cruise or two. Besides, if deposit rates go too low vs the prevailing risk/return while taking into account the inflation/deflation rate of the time, there's plenty of other more viable options for disgruntled depositors.

Hi R-P,

You write, "The interest more than funds a cruise or two."

To Waiheke Island and back??


...if only the envious Agent wished it was!

Indeed. R-P's cruise hopes on cruise boats are.......... sinking.


RP, it does seem like a preemptive strike, given the negative data is not all that bad yet (that we know of).

Cheaper floating mortgages?

Banks have already signalled lower rates, very quick indeed : )

From David Chaston today in the article you referenced "it is expected that banks will not pass on the full -25 bps OCR reduction."

What's going on with the trading banks not passing on the full cut? There was always a full cut in days gone by. Since then the margin between the ocr and the floating rates has fattened....along with the banks' (plural) profits (exclamation mark, exclamation mark)

I wouldn't be so sure Houseworks, I think this assumption is simply based on the fact that hardly any discount was passed through by the banks in the last cut in 2016. The situation is quite different now, banks are hungry for business, I will respectfully disagree with DC and say that banks will pass on more than 50% of today's cut, maybe not at first but watch once all banks show their hands

It's entirely plausible that with CGT kicked into touch and low interest rates likely to feature for a good while longer, there'll be an upward drift in house prices in the foreseeable future.

The economy is robust enough - with high employment levels, steady GDP growth, low inflation and low interest rates. Certainly, the key indicators could be much worse.

But don't rule out another OCR cut this year.......


Perfect storm of good economic conditions, combined with sluggish property sales makes for great timing for first home buyers to get into a home ... am preaching to the converted .... those who arent converted yet will probably realise too late vis-a-vis the dunedin fhbs who reportedly cant buy a house for love or money.

I would have thought no cut given Australia didn't cut rates. Maybe things are more dire than reported. Good for the property market thumbs up.

I think thats one of the reasons they did cut is to drop the NZ to AU exchange rate in our favor seen as AU is one of our biggest export countries.

I think thats one of the reasons they did cut is to drop the NZ to AU exchange rate in our favor seen as AU is one of our biggest export countries.

Yes. Also takes pressure off the Aussie banks.


Disgraceful from Orr and the RBNZ. Inflation is at 1.5% and we have full employment.

At this point it just looks like they're propping up the property bubble.

What will you do when there's a downturn Mr Orr? You have no room to move other than confiscating savings.

That's not true, RBNZ can lower rates by another 2 - 2.5%, or print money (I'm not saying this is right but they can and will if needed). Also the government can start spending large on major infrastructure projects


1 - 1.5%, unless you're keen on negative rates. Either way, it's not enough to combat a recession (according to Keynesian monetary theory), not nearly.

Just like in Europe, charges on bank deposits are coming.

Yes,1.5 minus 2 to 2.5 = - 0.5% to - 1.00%

Even if rates were at 0.1% they could still cut to 0.05%, thereby reducing the cost of borrowing by 50%. Exponential decay is infinite. Don't you see?

If NZ prints money, we will likely have serious inflation. We aren't a reserve currency. The government could issue a load of bonds for infrastructure investment yes, but would this not just maintain the current status quo as we are at full employment already? Essentially creating debt to keep things as they are... like using your credit card to pay the mortgage...

RBNZ's target is 2% CPI which it has only hit once in the past 7 years. Mr Orr is on track.

HeavyG, pray tell what will happen when there's a recession and unemployment goes up?

We unleaseh the dragons and turn to the hobbits for assistance... Let's keep it real RO.

In what way am I not "keeping it real"?

You haven't answered the question of what ammunition Orr has left.

The made up recession and increasing unemployment. But if that did happen there is OCR cuts, money printing and deficit spending that could be used. It's not like NZ has hit the wall.

But I have at 2:25pm above

LVRs still in the tool box.

What, remove LVR limits altogether and stoke the housing bubble further? But how is that going to impact the real economy. You know the one where people buy goods and services other than housing/realestate?


I give up. First all sorts of disincentives were dished out to slow the housing market down, now they are concerned that the market is slowing and want to support prices and create some inflation by cutting rates to joke levels.
It won't make any difference. People are scared to borrow for large mortgages even if interest rates were set at zero.


That's exactly where I'm at.
Borrow some eye-watering number for what?

The Greater Fool Theory is playing out in full symphony right now.

I wonder whether this will cause banks to stress test new buyers any differently, or whether they'll continue to do so at 7.5%.

I wouldnt have thought so, they dont tend to be very reactive to the odd small cut.

On inflation alone there was a case to be made to cut rates, so I have no issue with the decision. What I do have a problem with is how they got there. There was no sign of anything concerning Orr, or the other RB staff, at the last press conference and little has changed since. Yet here we have a cut only a few months later.

While it doesn't seem necessary to cut right now RBNZ may be nervous looking at the data they have. Time to cut back on off shore purchases given the hit the NZD just took.

picked it this morning
they can see a slowing economy

Yep. Well played. You could call it an ‘unnatural act’ from the RBNZ. It doesn’t bode well. Mr Kerr must now change his bullish stance because I expect the NZ dollar to get slaughtered!

I think this shows again that governments will do anything they can (lowering central bank rates, printing money) to avert a recession. Many will say it is wrong but we are better off dealing with what is, rather than what should be.


After 10 years of low cash rates, the RBNZ still hasn't been able to normalise monetary policy since the GFC. Same with pretty much every other Central bank in the world. Very interesting to see. Not much ammunition left for the RBNZ to fight off the next recession or financial crisis with. Some will say that this is the new norm and it may well be. What's concerning though is that this is the first time in history the majority of Central banks haven't been able to normalise after a record run of low rates before a Global economic slowdown occurred.

"Low cash rates" but not low enough to eradicate the interest rate differential for the carry trade that NZ and Australia has relied on for some time. If that differential appears, NZD could really crumble.

After this the only tools left in the cupboard are helicopter economics and massive infrastructure projects

I thought they would cut once they announced new capital holding allocations for bank. Carrot and stick approach. This seems too early. Again what does he know that we don't....

Bank capital requirements have not been finalised yet, they could very well be diluted much lower than the original proposal by the RBNZ (I actually believe they will be implemented but watered down)

Stoke it up baby!!


stimulate what? I am not against stimulation, but can they not stimulate something other than housing market? even a half-baked idea like government spending a significant amount rewarding genuine R&D activities for qualifying NZ entities sounds better than to make it cheaper to borrow and inflate house prices. Even 1 or 2 successful ventures may pay off massively for NZ where supporting NZ economy stimulating house prices simply makes life harder for most of us.

If you want to stimulate spending, maybe adjust the bloody income brackets for inflation!

Exactly. I don’t see what the point is.

Best argument is decrease exchange rate/increase trade competitiveness.

It would have helped to have some DTIs to mitigate the housing market impact in circumstances like this.

This will also slow down spending on imported goods too. Which must be a big chunk of NZ retail spending (outside food).

Precisely. What a bunch of idiots these guys are.

To add to your statement, they are also rapidly painting themselves into a corner. When s*&t really hits the fan economically, they won't have anywhere near the room to move that they should have. We will have 1% rates and a market collapse without any tools to combat it. If anything they should have been raising rates for the past couple of years, just to provide themselves with wiggle room. They fail to look at the long term average rate and fail to give themselves the tools they will need in the future. Classic short-termism from a bunch of obtuse dotards.

Woop! woop! The banks will be hard at work with the calculators - who will be first bank to offer 3.69% fixed for two years? This should pump the provincial housing markets up even further - estate agents gonna be busy as!

Will be interesting to see how much of the cut gets passed through by the banks ?

Banks are already signalling interest rates cut, that was incredibly fast. : )))

Do you mean the big four as HSBC and CCB are already offering 3.69% and 3.65% for 2 years respectively.

Make hay while there's some sunshine left I'd say, if you are real estate agent.

If you are a RE agent, the sun has set a while ago

That's not true. Thousands of houses will sell over the coming months.


I have just sold a pretty big retail business I have owned for 15 years. To say I am relieved is an understatement. The economy in general is pretty sick and a lack lustre retail sector confirms that. He is not dropping interest rates to save housing. Nothing can save that currently. He is looking at the overall economy and it is not currently great. It is not Labour's fault. They inherited an economy that was largely based on a strong housing economy and that is not enough to sustain it.


Well said Gordon and congratulations on your sale! :)

Alas, I fear it may all end in tears for poor Gordon........ )-;

He's been a tad short-sighted.


Gordons 12 up-votes vs zip says you're the only short sighted one here.

Hi R-P,

Your focus on "up-votes" makes a statement about you.......



Pray how may it all end up in tears for me? You know nothing about me. I retired at age 58 five and a half years ago after working in a profession for 30 years. I was only a silent partner in the retail business and my proceeds from the sale I have given to my children as my wife and I don’t need them to live on. Retail is struggling for a variety of reasons but the biggest reason is the rising cost of living. Rates , insurances, food , power and car running costs are continually rising and many are struggling to just pay for the basics. This country is getting very expensive to live in. I can go into a supermarket in Europe and buy cheaper and better food than here. We pay a lot for our isolation , small population and of course the supermarket duopoly.

It seems Agent Tothepoint now knows more about the finances of others than they do themselves (^_-)

His pre-ocupation is a sure sign his own may be in troubled waters...

I am quite surprised by this, considering the RBA didn't cut this week, and Australia's economy and housing market outlook is looking a lot worse than NZ. Perhaps there's some data we don't know about yet? Otherwise, how could stoking the property bubble further, and a sharemarket that has risen over 300% in 10 years, be a good thing at this point? Is it because they know Australia is in trouble and that's the biggest factor for NZ?


Well I called that one wrong this morning. I thought they’d show some restraint and leave something in the tank for when the shit actually hits the fan in the coming recession. Only the RBNZ will know how bad things really are, what a predicament, an economy that cannot support itself without the adrenaline rush of cheap credit and ever expanding household debt levels.

Joe, the cut was always coming, only the timing was in question. When Mr Orr stated that he had only received anecdotal evidence regarding credit or credit growth, you know matters are concerning, Auckland,its housing market as is obvious, has stalled, the RBNZ jumping now ,only reveals their worry.

Hi Cowpat
I'm keen to see the C31 figures for April, they've not posted them yet but my guess is that they were a stinker in comparison to previous April numbers. Low transaction levels taking their toll on mortgage growth and subsequent follow on spending from retail sales thereafter. We'll find out soon enough.

Boom. More downward pressure on the NZD. Just what the doctor ordered.

Glad I went to the USA last year. Next holiday will be to Waiheke! ha ha

Can’t go wrong with Waiheke... Hop some vineyards, sample the food. All good.

Glad I picked up quite a lot of USDs in the .67 range not long ago. Was thinking it could work out better than a term deposit in a shorter time.

Same, bought some at 68.6 a while back thinking they would drop but then closer to the announcement I was adamant Orr would hold, at least over the short term. I think the NZD is going to take a hammering.

Helicopter ride to Waiheke and lunch at Cable Bay or Mudbrick with a few wines might be the same prices as going to the US, lol

Your shout then Yves? ha ha

I’m in if Yvil is buying...

Health Left: 1.5%

Time for the NZ Economy to return to the Pokemon Ball ..


Here we go again on those who look for some meaningful term deposit returns. Yes there will be many who have some funds to invest that will not accept the paltry returns from the trading banks. On top of this increased costs from petrol,power, insurance, rates, food, imported goods means what is left is getting smaller.


Gotta sacrifice the savers to prop up the speculators.

Indeed, why should you get paid for someone else keeping your money safe?

Yvil, you mean fooling debtors into thinking they are being incentivised? All this while they are slaves to mortgages secured by unbank paper wealth? Right now, I know which I'd rather have. Sinking confidence especially in upper price escalons suggests more people are now like minded.

It's all yours ;-)

but is it safe
it is just as risky to put in a bank as many other forms of investment
and it more likely to be one of the least safest if we have another GFC

Spreading cash amongst all major banks reduces the chances a one off major haircut. Surely they won't all fail! In times of any bank failures housing would already be heading for 50% plus losses with many rendered under water amidst skyrocketing unemployment.

Those whom lose least emerge out the other side in the best position.

If there's a meltdown - and heaven forbid that from ever happening - I'd much rather have my wealth in real assets than money/paper assets.

The latter could be gone (forever) in a flash but real assets are durable - and their value reinstates as the economy recovers.


....more fool you.

Why should the RB reward speculators for taking on debt?

I reckon Orr has caught Kauri Dieback Disease from Tane Mahuta.

Running low on gas fellas!!

The working classes are on the ropes and the govt needs more tax to fund the non-working class. What to do? Lower the interest rate to negate the reduction in disposable income and voila! More money in govt slush fund and working classes "hopefully" no worse off. RBNZ following the failed ECB, BOJ model and the next step will be to buy NZ govt bonds to create employment through big govt spend up. Things couldn't be better!

I think you're getting the government and the RBNZ a bit confused, they are 2 separate entities that work independently form each other

really ??

Independently whilst paying a dividend to the crown accounts.

And setting their goals in conjunction with each other.

To fund the non working class? That "class" is what, 4% of people? Barely a margin of error. We are close to full employment!

What they are funding is WFF more (an idiotic policy which has caused productivity to stall), which is essentially giving money to private businesses so they don't have to pay their workers more. If the government had a brain, it would instead take the WFF money and re-allocate it to fully fund early childhood education, after school programs, childrens hospital visits until they were 18 and fund schools more so donations aren't necessary. They would probably still have money left over for tax cuts, or even better to make the first 15k or so of income tax free which stimulates long term unemployed into the labour market.

Instead they put over 50% of families on a benefit system that encourages poorer people to have more babies and discourages anyone middle class or up, encouraging the biggest tax payers to leave the country so they can have children. Then they wonder why they have to force employers to pay workers more by increasing the minimum wage, which now is the default wage for 10% of all workers (and increasing every time they put it up).

The entire tax and welfare system needs serious attention. Nobody has the balls to do it.

Does this mean the RBNZ thinks the economy is about to hit the wall?


Do the same thing don't expect different results.
Keep pumping up the credit bubble, maintain unaffordable house prices, deter savings and what ever you do do not resolve the underlying debt problem. Post 2008 GFC rates were slashed so people could paid down debt, the reverse happened and now they're advising the same.

Are celebrating borrowers remotely aware that increased bank capital requirements will increase mortgage rates into the future? Probably not.

Banks are already cutting interest rates, wonderful !!!

"A plan to strengthen banks against massive future financial storms could push up mortgage rates, lower asset prices and slow economic growth, analysts warn"


Maybe ... maybe not, it may be watered down or not pass at all, it may or may not increase interest rates in the distant future, but what we do know for sure is that the OCR is down today and that banks are already starting to lower interest rates. I prefer to deal with what is, rather than with what may be.

Geez, Aussie hold and we cut.

Our housing market must be a lot worse than we all feared!!!!!!!!!!


Our current account position is a lot worse than theirs.

To all the punters that have been calling for a crash in stocks, good luck with all those shorts! It’ll be off to the moon for stocks now. Why would anyone want to put their money in bank deposits?!

Ludwig, you say "Why would anyone want to put their money in bank deposits?!"

Like yourself, households who fund 80% of banks domestic believe they will get their money back plus interest. Those whose wealth collectively rests on paper believe they can outsmart the biggest fool.

Now we are at the top looking down in times of heightened risk, which group do you think will likely panic first?

Except that the performance report cards of investment categories ALWAYS shows fixed interest investments at the bottom :((((

....looking at the rear vision mirror again are we? I've also enjoyed the ride on growth funds and if it has to be included - appreciation the debt family home. I see a tomorrow rich with opportunities, just not the ones you'll be in a position to indulge.

Interest is dead money. Debt and Interest is more a noose in deflationary times.

Banks were very fast to drop the term deposit rates. ASB just dropped the 6 month special from 3.4% to 3.2% and I have just missed out by a week. Still will be good for those trying to pay off their mortgage. Overall not a good sign for our economy, the low rates could become the least of our problems.

Late last year / early this year I predicted two OCR cuts in 2019. I'm not so sure now of a second cut. I think the economy will continue to weaken in 2019, but maybe not to the extent I expected (the slump might delay till 2020). Time will tell.

Welp, guess they'll just keep pumping up prices forever and younger generations will never get a chance of owning their own home or retiring. Serves me right for not being born 10 years earlier I suppose.

A nice two bedroom unit can be bought for 200k in Christchurch. With 20% down that's only $120 a week in interest. A very nice Japanese import car can be bought for 10k which is about $8 a week in interest. Wide screen TVs are cheap as are most things. Clothes are cheaper. Beer from the supermarket is cheap. Travel is cheap. It's not a bad time to be alive.

A smattering of 'as is' earthquake-damaged units in one city, and 'cheap' discretionary items like tvs, beer and travel? I can see why things like that look like progress to people who had the opposite issue (cheap housing, expensive pretty much everything else) but looking at it from the other side it's an absolute disaster. Essentials like shelter have gone through the roof while the 'nice to haves' have gotten relatively cheaper.

Serious question Zachary, are there any listings you can point to? I recently had a look in Chch and couldn’t seem to find anything that price that’s nice and not “as is” so to speak.

I don't know which areas are good and which are not although I first started out in a poor area ( worst part of Glendene).
I just searched for two bedroom one bathroom units and got results like the following and ones in between:

Last one a bit more at 225k but looks well presented. Should be able to play hardball when purchasing now I would think.

Thanks for that Zachary. I travel to Chch often for work and it’s got me curious.

I little bit regret fixing at 3.95% for three years now. However differences like 3.86% and 3.90% for 500k translate to only $250 - $400 over a whole year so it is really very minor. My KiwiSaver goes up or down by these amounts on a daily basis. It's almost hardly worth writing about let alone losing sleep over.

Here I am at 5.5% on $160k. Due to go floating end of June so something like a 3.95% will be nice.

Another quarter percent interest drop is coming later in the year so go one year fixed rate this time nzd

Fix for one year NZ Dan, cheers

Zach, I'm surprised you fixed for 3 years, you're a smart guy, why would you handcuff yourself in for a whole 3 years? Go short

On this mortgage my five year interest only time is coming close so my thinking is they wont notice if I fix for three years. Not that paying principle is a problem though.