OCR Update 11/06/2015

Rate Cut! OCR reduced to 3.25%

Reserve Bank Governor Graeme Wheeler today reduced the Official Cash Rate by 25bp to 3.25 percent and stated that "We expect further easing may be appropriate. This will depend on the emerging data"

He cited his main reasons for the change as:

  • The fall in export commodity prices that began in mid-2014 is proving more pronounced
  • The weaker prospects for dairy prices
  • Inflation has been low due to falling import prices and the strong growth in the economy’s supply potential. Wage inflation and inflation expectations have been subdued.
  • The exchange rate has declined from its recent peak in April, but remains overvalued. A further significant downward adjustment is justified.
  • A reduction in the OCR is appropriate given low inflationary pressures and the expected weakening in demand, and to ensure that medium term inflation converges towards the middle of the target range.

 

New Government and Reserve Bank Regulations

A whole lotta change in a short space of time has resulted in:

  • Retaining the existing "speed limits" on Loan to Value Ratio (LVR) in Auckland
  • Loosening the speed limits a little, outside Auckland (a boom in Karaka anyone? jk)
  • Investor loans in Auckland to have a 30% deposit and possibly a new higher interest rate on those properties due to capital reserve requirements
  • Capital Gains Tax on non-owner-occupied residential property anywhere in NZ, sold within two years of purchase
  • Foreign buyers to have a New Zealand bank account and IRD number

We have our head around all these changes. Talk to us if you have some plans and need to understand any potential implications.

 

Interest Rates

Will certainly change as a result of this morning's announcement. We expect the floating rate to remain the highest on the yield curve even after the banks pass on their reductions to the floating rate.

Here is the current yield curve. The blue line is as at today; the red line is this time last year, and the yellow is from 2013.

Here are the current Swap Rates. As you can see, the 7 and 5 year sap rates have started to tick up. We anticipate this will result in a reduction in the discounting we have been seeing at these levels.

Talk to us if you would like to discuss a "back door short term float" to reduce your interest and increase your principal decimation.

 

Disclaimer

Everyone's circumstances are different. This statement does not constitute advice and is a general commentary on the current market. If you would like to discuss your specific situation, please call us to discuss. If you would like to lock in some rates, we can assist you as required. Due to privacy, we will need an email from you authorising us to access current information on your loans.

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