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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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.
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
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?
"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%
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.
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.
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.
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.
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...
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?
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"...
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.
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.
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).
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