Reserve Bank says it will be 'closely monitoring' movements in retail interest rates and bank margins; sees house prices falling 9% over the rest of this year

Reserve Bank says it will be 'closely monitoring' movements in retail interest rates and bank margins; sees house prices falling 9% over the rest of this year

The Reserve Bank's indicating that the country's retail banks haven't as yet been passing on enough of the stimulus the RBNZ has been providing and it says it will be watching them.

It wants to see lower mortgage rates while, separately, it is expecting that house prices are set to fall about 9%.

At a press conference on Wednesday, Governor Adrian Orr said the RBNZ didn't "put pressure" on banks. But he did say that ultimately the RBNZ expected "to see the full pass through" by banks of lower wholesale interest rates.

In its Monetary Policy Statement released on Wednesday the RBNZ said: "So far, we have not observed the pass through of wholesale interest rate reductions to retail interest rates to the extent we might expect in normal times."

The bank said this likely reflected a number of factors, including strong competition for deposits as market funding conditions deteriorated.

"As the economy comes out of lockdown, we expect a lift in lending market activity and increased competition from banks to put downward pressure on lending rates."

Clarifying this further, the bank said with wholesale funding markets settling and emerging signs of an easing in financial market conditions, "we expect to see more downward pressure on wholesale funding costs and deposit rates from the monetary policy easing to date, and this should flow through to lower fixed mortgage rates in the near future".

"As the economy comes out of lockdown, activity in lending markets will increase and competition for credit will also put downward pressure on lending rates."

The RBNZ said that "going forward", banks may respond to the low interest rate environment by sourcing more of their funding in wholesale funding markets, as this can represent a relatively cheap source of funding and add downward pressure to deposit and mortgage rates.

"The easing of our Core Funding Ratio (CFR) requirements gives banks additional flexibility over their funding sources, by reducing their need to fund as much through more ‘sticky’ core funding (e.g. long-term wholesale debt or retail deposits).

"We expect our recent monetary policy easing to pass through more fully to bank funding costs and lending rates in the near future, and will be closely monitoring movements in retail interest rates and bank margins."

On house prices, the RBNZ said it expected lower population and household income growth to cause house prices to fall, despite lower construction activity, lower interest rates, and the easing of loan-to-value ratio restrictions.

"Our baseline scenario assumes house prices will fall by around 9% over the remainder of 2020."

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43 Comments

I really don't think this is a good idea.

15
up

RBNZ wants higher house prices.

Sure, but what do interest rate matter if you don't have a job?

I don't think they want higher house prices. I think Orr has been worried the whole time about this situation playing out. I think this is just an attempt to soften the blow, even thought its looking like a TKO in many respects.

No, they have explicitly said in the last MPS that house prices need to keep rising to drive inflation.

https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Monetary...

But the CPI doesn't measure house prices (of existing housing).. if they want to push the price of building a house up, just throw in more daft H&s legislation (oh wait, corona virus has already done that..)

The theory is that if you're a home owner and houses keep going up in value, you feel wealthier. As a newly wealthy person, you increase consumption. When a lot of people increase their consumption, aggregate demand rises and causes inflation. It's the flow on effects they are targeting, rather than the actual cost of housing.

You increase consumption because you borrow more against your house as its now got greater paper value. Until it doesn't or you lose your job...

But if your wages/salary are only creeping up a miniscule amount per year , and you've still got 25years to go on that mortgage, and 30years before retirement, why on earth would you spend more instead of paying down that debt and preparing for retirement?

That is one of many valid criticisms of the wealth effect theory. It's part of economic dogma, but it doesn't actually exist.

You'd think seeing it hasn't seemed to work and cause inflation they might be a bit more critical in their thinking. Only thing it's inflated is asset prices.

Maybe it's hard to be objective when folk are all in on asset portfolios?

It's funny because it's true.

Japanesy

This government does not have a clue everything they are doing money wise will get pushed into the housing market rather than creating investment in new areas for new jobs that is needed to counter the loss in tourism etc

A heady mix of tourism, education, immigration, and house trading.

RBNZ isn't acting on government orders, it's an independent body that thinks it has a role to play in house price management. Scary stuff indeed.

Pretty sure Reserve Bank isn't the Government.

Think they are pretty much saying 'yours' now to Grant Robertson, we can do no more - fiscal policy time.

on the contrary - in a world full of over capacity these are the only jobs left …
ie more people building more houses for more people for more houses for more people….

Its a jobs to nowhere /.people PONZI … it has been for a while

I suspect the correct expression for government pretending it can create useful jobs is; pushing on a string.

But they an soak up jobs at the bottom aka. NZ Railways.

Reading between the lines here, without a doubt, I think the RBNZ knows that the health of NZ economy is wholly dependent on elevated house prices and their impact on consumer spending. It's not explicitly stated by Orr but there is not really anything else to deduce from this.

We're really backing ourselves into a corner. If we believe in our aggregate demand theory and fiscal policy doesn't create any, I just don't see how any of this matters now.

Who is going to lend to people with dodgy earnings and employment status/opportunities.

We're suffocating on debt and now expecting more debt to breath air into our lungs.

It is explicitly stated in the monetary policy statement. One of the key transmission mechanisms of monetary policy is inflating house values, and forcing savings down and borrowing up.

Have these people in the RBNZ got multiple homes or something?

10
up

What did we think was coming, a couple of years back?
A terminal rate of 1.99%, 2 years fixed, and it won't be long until that arrives.
But it's futile.
As has already been posted on this site today - lower interest rates do not magically create more creditworthy borrowers.
In fact, it produces exactly the opposite effect.

Interesting how 9 sounds not as bad as 10 ....

Surprising how specific they are at 9%.... Could have been 9.2% or better 8.8% which would have been better than 9%.

Damage control.

RBNZ can cut OCR whatever they want, but they gonna rescpet the free market and they can not force banks to lower their mortgage. If you dont respect that, you will have bigger problems in future. Trust me....

Imagine thinking interest rates were a function of a free market. It's not the 19th century anymore mate, we have monolithic institutions who tell us what the interest rates need to be now. It's for our own good.

More QE, lower interest rates, mortgage holidays, interest free loans, wage subsidies, no LVR... it's getting harder and harder to see house prices falling

"it's getting harder and harder to see house prices falling"

RBNZ base case scenario is house prices falling 9% for the remainder of 2020.

What is the RBNZ seeing that you're not seeing?

More people losing jobs, more companies failing, GDP crashing...yip its getting harder and harder to see house prices falling.

Gross Domestic Product is a fabrication of means...any means to avoid the truth.

It pays.. but unfortunately, the wrong people win. Truth be told.?!.

RBNZ is being optimist and wishing loudly.

Jeez Yvil, come on. I hope your comment was in jest.
If not, it's worrying.

Come on, you know he's a true believer.. nothing can ever bring house prices down, the Reverend Tony Alexander told him this in the Church of Ashley. Amen!

Mr Orr is worried that house price may crash and seems will be happy if it falls uptill 9% / pat his back. No harm in hoping and trying as that is his job BUT this time it will be hard to avoid with world economy moving towards depression.

No recession / depression without job loss and business loss and if job and business loss than house price fall is inevitable and 9% or 10% fall will be the starting point... Where the fall will stop depends upon how things unfold in next few months.

House prices dropping 9%,10%, 15% whatever!
How on earth does anyone predict that, it is just the normal blah blah blah!
Economists were tipping large drops for the past decade and they continued to rise, so you can’t rely on their predictions.
This 9% drop, where are they going to drop this amount?
Auckland, Wellington,Christchurch or everywhere by 9%?
Or is this an average over all of NZ?
Auckland drop by 20%, CHRISTCHURCH a rise of 10% or what?
Has anyone got the correct answer?

What do you care? You said there's zero risk in leverage when you invest in ChCh. You shouldn't worry about any of this.

I am not allowed to print money, but a certain section who shall be nameless have historically printed and produced prefabricated train sets, Kiwi built shonky homes, leaky homes built of soggy untreated timber, shaky homes, rocky horror story homes, flooded homes built on flood plains, , rental, mental, and old timers homes, Christchurch office tanking accommodation and National disaster funded insurance bailouts, and each and every one was not fit for purpose. Not one person was taken to task.
Amateur Laborers were imported, crap materials became the Norm...Teachers were employed to supervise rebuilds. Flags were waved by the populous the 23 million cost of flagging a new one. And one wonders why Housing costs so much to rebuild, when built on shaky grounds for instant dismissal.
Then bankers became sharks, slicing the Savers pensions with the aid of a penny pincher and a multi-million and useless scam officiando bleading us dry. They were taught to skim and scam by USA QE..policy.
Prison used to be the homes of criminals. Now Homes are the safe haven for thieves and tax avoiders and leveraged muggers. Banks used to store money safely in safes and it was a crime to steal...Now they rob Peter to pay..Paul.. Aided by Key figures and alternative Government Intervention...I could elaborate further, but words fail me.
No Honesty, no honestly. There must be a film in there somewhere. It must be over the eyes of the righteous.

Crime does pay, but then so does dereliction of Duty....plus GST. Are we all blinded by the sun, or what?.

Too wedded to the 'Debt is good' model?

Nothing here about business lending or anything like that, so this is about house prices. While to a VERY limited extent it may soften the blow that's coming, but for most it will not matter.

Oh yes the bank's comment "strong competition for deposits" is rank comedy! If there was any competition for deposits, interest rates would be higher. I suggests that bank actions, including the RBNZ is to actively discourage saving. (low to nil interest rates, high fees, talk about negative interest rates)

House prices always go up over the long term. If there is a 10% drop you should buy in. In ten years time you will be laughing. If you are working in the infectious diseases sector or mask manufacturing, you should buy as many as you can. All you need to do is understand money!

The British pound was defined as 12 ounces of silver, so it’s worth less than 1/200 or 0.5% of its original value. In other words, the most successful long standing currency in existence has lost 99.5% of its value.”

When is the RBNZ going to face up to what we all know .............we are in the early stages of a deflationary spiral .

We know that prices of almost everything other than housing ( and petrol which fluctuates ) has fallen or been static over the past 5 years.

And we are anticipating that prices will fall further

Our weekly spend on groceries is flat for the past 2 years
Insurance costs have come down ( other than life cover )
Electricity and gas has been static
Clothing footwear ans textiles are down

orveries