RBNZ's Wheeler expects banks to pass on most of OCR cut; says RBNZ will send debt to income multiple limit plan to English in next week or two, but unlikely to be introduced this year; says migration putting downward pressure on wages

RBNZ's Wheeler expects banks to pass on most of OCR cut; says RBNZ will send debt to income multiple limit plan to English in next week or two, but unlikely to be introduced this year; says migration putting downward pressure on wages
Reserve Bank Governor Graeme Wheeler at the December 10 Monetary Policy Statement news conference in Wellington.

By Bernard Hickey

Reserve Bank Governor Graeme Wheeler said he expected banks to pass on most of today's 25 basis point cut in the Official Cash Rate (OCR) cut to mortgage borrowers, but agreed international funding costs had risen and that banks may need to keep term deposit rates up or even raise them to closer match their funding with their lending.

His comments followed ANZ's decision to pass on only 5 basis points of the cut this morning to its regular floating mortgage rate customers and to increase its term deposit rates. See more here in David Hargreaves' article.

Wheeler was asked about the ANZ decision and talk other banks would follow its lead at the Reserve Bank's news conference after his OCR announcement and the release of the August Monetary Policy Statement.

"We would like to see most of it passed on," Wheeler said.

The banks retained about 15 basis points of the 50 basis points of OCR cuts in December and March, while their Australian parents retained 11-15 basis points of last week's Reserve Bank of Australia 25 basis point rate cut. See more in David Hargreaves' piece last week and in David Chaston's call on Monday for new capital risk weighting rules for banks.

Wheeler said in the news conference he had said after the last cut in March that he also expected most of it to be passed on. Here's our March 10 report on Wheeler saying he expected all of the 25 basis points to passed on to floating rate borrowers and most of it to be passed on to fixed rate borrowers.

"Certainly you'd expect the floating rates to come down 25 basis points, and the fixed will depend on a lot of factors, but one would expect that most of that would be passed on," Wheeler told the Finance and Expenditure Select Committee on March 10.

Wheeler said in today's news conference he had not seriously considered cutting the OCR by 50 basis points, as some in the financial markets had expected. The New Zealand dollar jumped after the decision and after the Reserve Bank included one more cut in its central forecast for later this year. See more in our article earlier today.

'DTI limit news soon, but not introduced till next year'

Elsewhere, he said the Reserve Bank was about to send a report to Finance Minister Bill English in the next week or two formally requesting the inclusion of a new debt to income multiple limit in the Reserve Bank's Macro-Prudential tool kit, but cautioned it was unlikely to be introduced this year. 

"We shouldn't expect to see anything this year," he said.

Migration dragging on wage inflation

Meanwhile, Wheeler followed up Reserve Bank comments last month about the need for a migration review by saying the Reserve Bank was considering how record high net migration was putting downward pressure on wage inflation and whether skill levels of migrants have been a factor.

Treasury has previously warned in advice to ministers that a higher number of relatively low skilled temporary migrants may be dragging on wage growth, although the Government has said it has not seen evidence of that. Wage growth was at a 6 year low in the June quarter despite economic growth being over 3%. See more in my June 12 column.

Wheeler noted that the labour force had increased by around 4% over the last two years, largely due to record high net migration.

He said wage inflation had been surprisingly moderate and high net migration had played a role in that. He said the Reserve Bank was interested in the quality of the migration and whether it was a factor keeping wage inflation low.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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If DTI measures are introduced as they should have been 5 years ago , the National party will simply be signing its own demise.Will English acquiesce. Why the RBNZ believes it needs to defer and defer on the DTI measures , as if waiting for a miracle is deeply troubling. Bottom line , if you own an Auckland house in particular, it will be worth significantly less in 18 months if DTI introduced. Interesting surge in property listings over past 3 weeks

can you really see the government signing off on DTI, they have been doing everything in there power to keep prices up and growing, otherwise their its only about supply argument falls over along with any supply that may be building

18
up

Just what is going on with immigration policy.
John Key, Bill English and the rest of his Yes Prime Minister crew seem to be the only people still claiming we need this extraordinary level of immigration. There is no evidence of any skills or labour shortage. The generally low Kiwi wages and lack of wages growth tends to confirm that there is no such shortage and to make matters worse for us born and breds it is causing a huge squeeze on accommodation, schools, roading and so on. This is starting to look very strange. Does anybody know just what the agenda is?

Its not nailed down yet - Shonkey is waiting to hear back from Colmar Brunton

Agenda? The government thinks like a solo mum living in South Auckland, if 6 kids are good then 8 must be better..

11
up

Yeah, good one.
Seriously though, what is the thinking: we have the reserve bank trying to generate a little wage driven inflation and simultaneously battle a housing bubble, we have a wave of immigrants with lower skill levels than the locals, we have north of 5% unemployment and an army of multigenerational former working class now beneficiaries/criminals, chronic housing shortages in places, struggling towns and smaller cities, an economy heavily dependant on the same primary exports and our large cities consuming well in excess of production, declining exports as a share of the economy and high and rising debt and current account deficits.
These serious problems are not being helped with more of the scale and type of immigration we are experiencing and mostly made far worse.
So who wants more immigrants - some employers? They always say that anyway so they can force wages down. I just don't understand it.

Great post.... what a legacy National will leave behind ... not sure anyone will be able to pick up the pieces.

We are in an age where a politicians charisma wins votes and policy is completely ignored.

I never fully appreciated the saying "You can't have a strong Government, without a Strong Opposition" until now.

Man I wish there was someone else out there with even a tiny bit of talent.

Kiwidave,

The agenda is simple-winning the next election. Key is banking(pun intended) on there being more happy and likely to vote householders,than unhappy and less likely to vote non householders.
Only if the polls shift substantially,will there be any substantive action and under no circumstances will that include an enquiry into substandard Chinese steel.

He's an absolute jibberer. If his goal is to drop the currency while controlling the housing market, then he should be telling banks NOT to pass on the cuts to mortgage borrowers!!

Time for individual bail outs to each NZ citizen, by giving them $5000 which they can spend and boost inflation rate ? Will work better than these OCR cuts...

Australia did this ($1,000) during the GFC to support the economy.

It was one of the most effective actions at the time.

I was working in an Emergency Dept in Australia at the time. Lots of money on alcohol and pokies, surge in domestic violence. Harvey Normal priced big screen TVs (from China) at $1000 exactly and had 2 trucks parked out back stocked with these TVs as they were flying out the door (the town I was had a population of 15K). Other big surge was shitty plastics toy sales (also from China), as per taxi drivers, who were rushed off their feet. In hindsight it worked really well at stimulating the Chinese economyand the local pubs, the taxi drivers also didn't do too badly.

Smokey,

But what if most just save it? That would be entirely rational,as if the first lot of helicopter money doesn't do the trick, perhaps another lot will fall from the sky.

Do we have the most fearful Res Bank in the western world - whenever push comes to shove they seem afraid to make a call.

Do tell us more about how much more courageous and bold other Reserve Banks have been, and with what results.

context? Some other banks have tried raising theri OCR and tanked their economy, not the best outcome IMHO.

Couldn't they reduce the OCR, introduce land-tax, and reduce income tax? This would essentially have the desired outcome wouldn't it?

I actually believe BE would like to sign off on the the DTI's, however, there's absolutely no way John is going to allow that to happen.

If anything, like almost every other policy, it would be agreed to at an incredibly weak / watered down rate, I'm guessing something like "DTI ratios at an affordable rate of nothing over 10:1" to ensure it doesn't actually stop house price inflation, but is another trendy sound bite they can add to the ever growing list of failures.

The public hear "Affordable", they cheer, life goes on.

"We would like to see most of the OCR cut passed on" well it's not, what are you going to do about it Mr Wheeler and Mr Key ?

DTI and non resident tax or lock out is the only option. National must act here or they are GONE. Property ponzi party members another clear warning here - right size your ponzi of debt before the cruel bladed edge of leverage cuts you bad.

Pays down debt, grabs popcorn....

Forget Non resident tax focus on foreign buyer tax which includes non residents and local foreign residents (students and temp visa which collectively buy 13,500 a year and make up 32% of resident buyers per linz)

Interest.Co.nz are students and temp visa workers foreign buyers ? (Like they are classified in Canada and Aus)

Still waiting for a response on this one. The last response they gave is that "a resident Can never be foreign buyer". Funny thing is with this mindset a kiwi living overseas buying in nz would be a foreign buyer.
This suits the govt and media agenda (RE and bankS) that foreign buyers are a small % of the buyers by only including non resident (4%) and completely ignoring students and temp visa (32%)

Think about it. If you are rich enough to send your child to study in NZ then you could probably buy a house there at the same time. Much better to buy if you have someone on the ground that can take a look at it beforehand and stay in it while there.

So, Wheeler is not in your camp, Bernard ?

Reserve Bank Governor Graeme Wheeler said he expected banks to pass on most of today's 25 basis point cut in the Official Cash Rate (OCR) cut to mortgage borrowers, but agreed international funding costs had risen and that banks may need to keep term deposit rates up or even raise them to closer match their funding with their lending.

What part of the following BoE statement does this governor not understand?

In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money. Read more

The only reason banks engage off-balance sheet cross currency basis swapped foreign wholesale funding (beyond OBR) is to avoid the need for the banks' owners to stump up more capital to expand the already risky asset ledger.

DTI .... they have been talking about this for years. How complicated could it be. Get on the phone call someone in the UK and find out what they have and how it was implemented

No point reinventing the wheel.

As for National they will do everything to prevent a drop in prices so expect a limp wrist approach probably a high limit 7 to 1 with loads of exceptions.

http://www.cnbc.com/2016/07/19/vancouver-moves-to-tax-empty-homes-in-ove...

Tax empty homes ... brilliant I can't get enough of Vancouver's two new taxes....

Imagine that reducing demand when supply is tight... what a great concept

Also will raise millions of much needed funds in the process to cover infrastructure.

immigration is the last buffer against recession. They will do everything they can to stop property values falling.

What a bloody shame they didn't put as much energy into preventing them reaching the ridiculous heights they have.

Banks are truly shoving it right up Wheeler and Key! What a joke - everyone move to Kiwi Bank and reward them for passing on more of the OCR cut than any other greedy bank