Rate cut may be further out

Longer-term fixed rate home loans continue to fall, even though Reserve Bank governor Alan Bollard tried, last week, to dampen expectations that a rate cut is imminent.

Thursday, March 13th 2003, 12:40AM

by Jenny Ruth

The Real Estate Institute’s latest survey shows, most lending institutions cut their one to five year fixed rates in the past month, some even after Bollard’s March 6 Monetary Policy Statement.

ASB Bank, for example, cut its four-year rate on Saturday from 7.10% to 6.95% and its five-year rate from 7.15% to 6.95%. On Tuesday, National Bank made identical cuts to its four and five-year rates.

And wholesale interest rate markets are still banking on the Official Cash Rate (OCR) falling from 5.75% to 5.5% in June and to 5.25% by September.

Westpac economist Nick Tuffley says Bollard didn’t want to destroy rate cut expectations so much, but to postpone them.

The central bank "is inching towards a rate cut but it still hasn’t reached the threshold yet – if anything, there was a little bit of over-anticipation leading into the statement," Tuffley says.

Ulf Schoefisch, chief economist at Deutsche Bank, agrees Bollard wanted to dampen rather than extinguish cut expectations.

"The bank has just pushed it a little more into the future."

Indeed, some people are beginning to argue that June is too early for the first cut and that September is more likely, Schoefisch says.

Both economists also point out that changes in the OCR have most influence on shorter-term rates and less and less the longer the term.

The longer-term rates are most influenced by global interest rate markets which are dominated by the US.

Currently, fears of what war will bring and a spate of poor economic figures coming out of the US have US 10-year bond rates at 44-year lows and there’s even talk that the US Federal Reserve further cut its cash rate (which at 1.25% is already at an historical low.

« Fixed rates keeping falling

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