Silence from the banks

Personal Finance / opinion

Twenty four hours after the RBNZ hiked the Official Cash Rate by 50 basis points, no bank has announced any rate change

26th May 22, 2:14pm by David Chaston

Image sourced from Shutterstock.com

The Reserve Bank (RBNZ) raises the Official Cash Rate (OCR) by 50 basis points, and 24 hours later the banks respond with ... nothing (so far, at least).

In the immediate aftermath of Wednesday's OCR hike, wholesale swap rates rose sharply in the one, two and three year durations. (In fact they rose so much, they were above five and 10 year swap rates - for the first time since 2008).

So, not only haven't we had any floating mortgage rate changes so far, we haven't had any fixed rate changes either.

The fixed rate in-action may be understandable given wholesale rates haven't snapped back to their early month highs yet, although they are getting close again.

Nor have we had any term deposit or savings account rate changes either.

The risk of writing this note now is obviously it may not get published before an actual interest rate response. But a 24 hour delay by everyone is curious.

We can't recall any OCR rate change that didn't bring a retail rate response from at least one bank within a few hours. So this situation is somewhat unusual.

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54 Comments

by Dgm | 26th May 22, 2:23pm 1653531817

is it becuase the rise is going to be so scary that they dont want to be the first one out of the block!!!

by Gummy Bear Hero | 26th May 22, 2:26pm 1653531963

.. or because they're waiting to hear back from Jodie Foster's agent , if she'll agree to star in their new horror movie : " Silence of the Banks " ...

by Independent_Observer | 26th May 22, 2:27pm 1653532045

Movie sounds Orrsome.

by JimboJones | 26th May 22, 3:21pm 1653535301

O for

by fortunr | 26th May 22, 2:30pm 1653532204

Banks have been caught completely off-guard by the unexpectedly hawkish position of the RBNZ - and they are re-evaluating the consequences of this new environment.

Changes will happen, and soon, but I would expect such changes to start from next week. As soon as any bank blinks, the others will almost immediately follow.

No saver should create nor renew any term deposit until the unavoidable rates increases start happening. The message should be made clear to banks that no saver would accept current rates, but that retail rates must increase now as a result of this new environment.

by Gummy Bear Hero | 26th May 22, 2:36pm 1653532612

I'm getting Carlos's point that the RB should've shocked the markets with a 100 points rise ...

... Orr's indicated that he's looking to get the OCR towards 3.95 % ... so , just do it ... big hikes to quickly squelch down on speculation & inflation ...

by strobe | 26th May 22, 2:43pm 1653533000

Agreed, just get to the point, get to the 3.95% OCR now. Quick to drop rates, years/decades to raise them. That's why nobody believes them when they talk a big game.

by MidNZ | 26th May 22, 3:03pm 1653534190

Yeah there does seem to be a gap in logic somewhere. Why not just say on Day X the rate is going to 3.95 because that is the rate we have calculated it needs to be at?

by Pragmatist | 26th May 22, 3:22pm 1653535371

because there is no reliable calculator, they need a feedback loop to fine tune the response to try to avoid crashing the economy. And the feedback loop is laggy.

by MidNZ | 26th May 22, 3:34pm 1653536044

It could be that I am naive but that would be part of the calculation step?

I know "the markets like certainty" but if the goal is actually to get on top of inflation and time is of the essence then why not hurry up? Decisions don't need to travel by horseback between cities anymore....

If we increase the pace of the decision then yes things can go wrong faster, but they can also get better faster rather than the slow motion train wreck we seem to be in currently

by Independent_Observer | 26th May 22, 3:23pm 1653535416

Because they are hoping/praying that they get the desired result (reduction in aggregate demand) without actually doing it.

by MidNZ | 26th May 22, 3:35pm 1653536106

So like the parenting "don't make me count to 3" where nobody actually wants to get to 3 but that is the way the game is played?

by EdwardD | 26th May 22, 4:00pm 1653537626

Agreed, but just like parenting we will reach three. Mr Orr talks tough, but his words mean very little.

by Rumpole | 27th May 22, 12:41pm 1653612113

Strobe - Just delete the last 6 words of your last sentence and the truth is revealed.

by NZBilly | 26th May 22, 2:38pm 1653532739

So we will now get to pay more of our hard-earned $$$ to the bank, while we receive small returns if we invest in a term deposit with the bank. Our largest four banks are Australian owned, yet our Australian neighbours get to keep more of their hard-earned $$$ and earn higher returns with their term deposits invested. Is this just a big brother/small brother situation, or does this 'gap' occur with the US and UK against Australia?

by Baywatch | 26th May 22, 6:50pm 1653547849

You don't have to bank with them...

by MisterB | 26th May 22, 8:35pm 1653554133

"Australian neighbours get to keep more of their hard-earned $$$ and earn higher returns with their term deposits invested."

Where are you getting that info from??

ANZ AU 12 month TD = 0.20%; ANZ NZ = 3%

CBA 12m TD = 0.65%; ASB = 3%

Westpac AU 12m TD = 0.25%; Westpac NZ = 3%

by JRSNZ | 26th May 22, 2:42pm 1653532928

Somewhat unrelated but I see Westpac have started charging retail morgtage customers loan establishment fees. In my whole career such fees have always been waived. Unsure of the reason or implication, but interesting nonetheless.

by JimboJones | 26th May 22, 3:17pm 1653535025

Both of them?

by buyandhodl | 26th May 22, 2:50pm 1653533453

Of course? It's already priced in?

by company of heroes | 26th May 22, 2:58pm 1653533912

You'd be dreaming...Even if the 50bps is already priced in, they will still need to raise the rates to meet RBNZ's new OCR forecasts. I think fortunr made good points that they are caught off guard and still evaluating the situation at the moment.

by JimboJones | 26th May 22, 3:20pm 1653535228

Or maybe the profit hit from not passing on rates rises is less than that from foreclosures? I doubt we are there yet but it could happen.

by company of heroes | 26th May 22, 3:54pm 1653537294

Or they could wait on each other and see who is going to raise the rates first? ANZ is usually the first bank that starts raising rates. But its rates are pretty high already. So could be another bank who leads the way?

by nktokyo | 26th May 22, 2:53pm 1653533588

They raised them ages ago and took extra profit in the meantime

by Pragmatist | 26th May 22, 3:15pm 1653534926

shush, you'll annoy the doomy gloomies.

by JimboJones | 26th May 22, 3:18pm 1653535109

They are not already annoyed?

by Pragmatist | 26th May 22, 3:54pm 1653537245

Don't know, hard to the the annoyed whine from the everyday whine.

by Independent_Observer | 26th May 22, 5:05pm 1653541554

Is your post a whine about others who whine?

by company of heroes | 26th May 22, 3:48pm 1653536910

Could you enlighten me on what exactly are doomy gloomies? People who are talking about crash in economy?

by Independent_Observer | 26th May 22, 4:07pm 1653538031

A term used by those who are benefiting from the status quo, in an attempt to belittle and silence those who can see through the injustices that have taking place....resulting in the financial and social instability we now have to deal with....which those who have been benefitting from don't appear to care about....because for them, personal financial gain, is more important than the utilitarian perspective of what is right, in the longer term, for the greater good.

by Pa1nter | 27th May 22, 7:22am 1653592979

So we want:

- Low, stable house prices

- High paying jobs with low work hours

- High standard of living

- Clean environment

- No foreigners (either tourists of migrants)

Sounds great, sign me up!

by Independent_Observer | 27th May 22, 10:12am 1653603148

You're being facetious.

Houses that are representative of incomes with the ability to regulate interest rates back to long term averages (without causing the economy to crash) is where we should be aiming. This will increase social stability and reduce financial instability.

Putting the cart (house prices) before the horse (the economy) is foolish. It will cause great pain for large parts of society over the longer term, in order to protect the interest of those who are already well off. Its stupidity.

by JimboJones | 26th May 22, 3:15pm 1653534912

Why has it taken so long for short term rates to overtake long term? Does the market think rates will be higher than now on average for the next 5 years?

by AJ123 | 26th May 22, 3:28pm 1653535697

Banks are spooked by the decision.

0.50 is not small amount considering the mortgage amount kiwis hold, eventually it need to be passed to every new and existing customers.

by Noncents | 26th May 22, 3:36pm 1653536161

The OCR is currently higher than all but two savings accounts.

The OCR is currently higher than all TDs less than 6 months.

Can we now all finally agree the OCR and therefore the entire RBNZ function is POINTLESS.

They can neither compel the retail banks to manage the money supply, nor impact supply side inflation.

by buyandhodl | 26th May 22, 3:55pm 1653537350

I think you need to brush up on the basics of monetary economics

by Noncents | 26th May 22, 5:09pm 1653541783

How so?

The mess we appear to be heading for, can only be due to two reasons.

It was deliberate? or
The RBNZ had no actual control.

It cannot be incompetence in this instance, because even Mr Magoo could see what was happening.

Acknowledging 1, means some heads may roll. Acknowledging 2, means the system no longer works (or never worked to begin with)

My money is on 2.

by Rumpole | 27th May 22, 12:46pm 1653612390

The RBNZ has other tools that can be used to persuade Banks but refuse to use them.

by blobbles | 26th May 22, 3:38pm 1653536328

There is a second article on the Interest home page that says "The number of mortgages issued in April plummeted - while the average size of them still continued to increase, reaching a record high..."

Are banks are going... hang on, we have suddenly got a very small number of mortgages in the pipeline... we need to be veeerrrryy competitive to make sure we can still write some loans... we had huge margins before which we might be able to cut into...

by MidNZ | 26th May 22, 3:44pm 1653536647

I think you may be on to something...

With sales dropping then there is less people paying early termination fees and with prices dropping the value of borrowing will also be dropping going forward, so less $ lent to make margin against. Are their revenue projections about to head off a cliff like a looney tunes cartoon?

by blobbles | 26th May 22, 4:52pm 1653540778

Market share is actually a huge KPI for banks. They have made out like bandits over the last couple of years with skyrocketing profits being reported every quarter. Me thinks they upper management will be like "Let's cut into our profits a wee bit to gain market share"...

by Rumpole | 27th May 22, 12:49pm 1653612557

The huge increase in Bank profits has nothing to do with Banks efficiency or good management, the profit increase is simply a windfall gain and should be subject to a windfall tax - 50% would be a good start!

by ex agent | 26th May 22, 3:57pm 1653537441

The Banks are finding it harder to get their money out there earning interest. That is why the TSB reduced their 2 year rate recently. They need to be competitive and they need to grow their book. I just about feel sorry for them. Just kidding.

by bobestm | 26th May 22, 5:43pm 1653543825

I think they have pushed as high as possible.

The OCR may rise, but there is enough margin to remain profitable.

by MisterB | 26th May 22, 8:38pm 1653554291

Looking at swaps, there doesn't look to be much margin at all on fixed lending. Fixed deposits, perhaps.

by bobestm | 27th May 22, 1:55pm 1653616500

Ah, I see your point, quite valid.

by Squishy | 26th May 22, 7:34pm 1653550463

Mexican standoff between banks? Seriously though the raise was very widely anticipated this time, perhaps the Reserve Bank was a little too predictable.

by Hummy | 26th May 22, 7:55pm 1653551755

There are massive problems coming as everything is geared to the ridiculous low rates. I find it really sad that so many people get in big trouble, because of people listening to "experts" who were saying interest rates would stay low for next few years. Education is definitely not up to the task.

by waymad | 27th May 22, 7:31am 1653593517

"Education is definitely not up to the task."

Or, and much less easy to fix, IQ's.....

by Carlos67 | 26th May 22, 8:33pm 1653553998

Perhaps the banks are already worried about the level of new lending. House prices are still not exactly crashing yet and a big hole could appear in their income stream. New lending is going to go off a cliff very shortly the speed of the rises has to be having an effect. Could be a case of who blinks first.

by Justa comment | 26th May 22, 9:00pm 1653555641

And dont forget the banks have been sourcing the FLP for cheap funds, but dont forget the loans are indexed to the OCR retrospectively, so the FLP funds are not so cheap anymore.

by jpt60 | 27th May 22, 11:45am 1653608711

Very good to remind us all about the FLP.

The RBNZ is "fighting" inflation while the FLP is ongoing.

Even when the FLP is indexed to the OCR, it is still way cheaper for the banks than paying savers/term depositors a fair return compared with their mortgage earnings.

Banks and RBNZ have much in common with our supermarket(s).

by akuviren | 26th May 22, 9:34pm 1653557694

It is because most banks have already raised both its variable and fixed rates prior to the announcement but well in anticipation of the forthcoming OCR review by RBNZ.

by Averageman | 27th May 22, 6:38am 1653590289

Banks are making good profit so perhaps they will absorb this...tui.