OCR Update 30/04/2015

With ever stronger hints at a future reduction

Reserve Bank Governor Graeme Wheeler today left the Official Cash Rate unchanged at 3.5 percent.
He cited his main reasons as:

  • Policy interest rates are at record lows and many European government bonds are trading at negative yields. 
  • Considerable uncertainties exist in Europe, China and Australia, and on the timing of US monetary policy adjustment.
  • Crude oil prices are almost 50 percent below their July 2014 level.
  • The New Zealand economy continues to grow at an annual rate of around 3 percent, supported by low interest rates, high net immigration and construction activity, and the fall in fuel prices. 
  • House price inflation is elevated in Auckland.  However, lower dairy incomes, lingering effects of drought, fiscal consolidation, and the high exchange rate are weighing on the outlook for growth.
  • Annual CPI inflation [lowered] to 0.1 percent in the March quarter. 


Key statements we think you should know about:

  • The Bank expects to keep monetary policy stimulatory, and is not currently considering any increase in interest rates.
  • The appreciation in the exchange rate, while our key export prices have been falling, is unwelcome.
  • It would be appropriate to lower the OCR if demand weakens, and wage and price-setting outcomes settle at levels lower than is consistent with the inflation target.


Interest Rates

An interesting situation exists where the banks are making a huge margin on the floating rate and very little on the one year rate. With the discounting we are seeing, they are also making little on the 4 and 5 year rates.

Here is 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.

The floating rate is the least attractive - talk to us if you would like to discuss a "back door short term float" to reduce your interest and increase your principal decimation.


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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