Reserve Bank Governor Graeme Wheeler today reduced the Official Cash Rate by 25bps to 2.00 percent.
With the dollar jumping (rather than falling) after the announcement, it is clear the market expected a surprise 50bp drop.
He cited his main reasons as:
- Global growth is below trend.
- Long-term interest rates are at record lows.
- The high exchange rate is adding further pressure to the export and import-competing sectors.
- A decline in the exchange rate is needed.
On the near future:
- Our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range.
Of significant note
"The Bank is consulting on stronger macro-prudential measures that should help to mitigate financial system risks arising from the rapid escalation in house prices."
New LVR Restrictions
So there is a lot of misunderstanding around the new restrictions that are in place when it comes to borrowing. Here is a quick snapshot of how it stands today (noting the comment from the Reserve Bank in the above box).
1. Buying a property as an owner occupier
- Borrow up to 95% (some short term lower levels with some banks and some conditions around this)
- Access your KiwiSaver if it is your first home or you are "starting over" eg after a divorce
- KiwiSaver funds can be used for the entire deposit
2. Buying an investment property
- Borrow up to 80% against your owner occupied property and up to 60% on the investment property; except...
- If the investment property is a new build, borrow up to 80% on both your owner occupied and investment property
The swap rates are all sitting up to 10bps above their low of 4 weeks ago and have been moving slightly up and down during that period.
The longer term swap rates are volatile with increased chatter around the shortage and therefore increased cost of offshore borrowing. We note an increase in term deposit rates following this OCR announcement suggesting the banks are finding it cheaper to source money onshore from savers than offshore at this time.
Here are the current Swap Rates
and here is the yield curve. The blue line is as at today; the red line is this time last year, and the yellow is from 2013.
There is not much movement in the rates at the moment and good discounting is available on the long term with decent specials on the short term.
The banks have caught on to the "back door float" and the 6 month rate is no longer that attractive.