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Mortgage Rates Daily Commentary
Thursday 28 November 2024  Add your comment
Sizeable OCR cut expected in Feb; Banks rush to cut rates after RBNZ'S decision yesterday

Another 0.50% drop in the OCR is expected from the Reserve Bank in February. [READ ON]

The Reserve Bank has cut its official cash rate (OCR) to 4.25%, in line with most economists' expectations, and says it's likely to cut further next year. ASB Bank and Kiwibank immediately published cuts in their lending and deposit rates while Bank of New Zealand swiftly followed. [See here]

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Inflation expectations fall sharply

Marked decline in inflation expectations could be crucial for OCR outlook, one major bank says.

Wednesday, February 17th 2016, 10:53AM

by Miriam Bell

The Reserve Bank has released its quarterly survey of expectations and it shows a significant fall in expected inflation.

Respondents now expect inflation will be at 1.63% in two years’ time, as compared to the 1.85% recorded in the last survey.

Westpac chief economist Dominick Stephens said it is the lowest ever level of inflation expectations relative to the inflation target.

“We have been expecting inflation expectations to fall for some time, but the size of today's drop took us by surprise.”

Inflation has been below the 2% mid-point of the RBNZ's inflation target band for some time.

Stephens said the RBNZ has argued that the drop in inflation is temporary, and that monetary policy is on track to achieve 2% inflation in the future.

But crucial to their argument was that, even when inflation was low, inflation expectations remained close to 2%, he said.

“Falling inflation expectations across market- and survey-based measures is now calling that argument into question.

“Low inflation expectations may start to impact wage claims and price setting behaviour, in turn leading to even greater downward pressure on inflation.

Westpac is forecasting that inflation will fall to -0.1% by September 2016 – which could lead inflation expectations to fall further.

Stephens said the data is a very important development for the OCR outlook

“It further substantiates our long-held call that the OCR will fall below 2.5% this year.”

While he expects an OCR cut in June, he said the data means the RBNZ could move sooner and cut in March.

However, in a published comment, ANZ took a different view.

The bank said they were coy about reading too much into recent shifts in inflation expectations, particularly given the broader picture.

The RBNZ is going to have continued problems hitting its inflation target, as will central banks around the world, and inflation expectations will be prone to drifting in such an environment, ANZ said.

“Cutting the OCR in the face of greater leveraging behaviour, solid consumption growth, and double digit house price growth is the recipe for an accident.”

ANZ said the RBNZ’s emphasis on flexibility, as opposed to a mechanistic approach, when fighting inflation was appropriate.

For this reason, the bank doesn’t expect the RBNZ to be too concerned over the dip in inflation expectations.

Tags: ANZ banks interest rates OCR RBNZ Westpac

« Dropping rates should boost slow growthHSBC offers lowest home loan rate in over 50 years »

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build ▼4.94 - - -
AIA - Go Home Loans ▼7.49 5.99 5.69 5.69
ANZ ▼7.39 ▼6.39 ▼6.19 ▼6.19
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - ▼5.79 ▼5.59 ▼5.59
ASB Bank ▼7.39 5.99 5.69 5.69
ASB Better Homes Top Up - - - 1.00
Avanti Finance 8.40 - - -
Basecorp Finance 9.60 - - -
BNZ - Classic - 5.99 5.69 5.69
Lender Flt 1yr 2yr 3yr
BNZ - Mortgage One ▼7.54 - - -
BNZ - Rapid Repay ▼7.54 - - -
BNZ - Std ▼7.44 5.99 5.69 5.69
BNZ - TotalMoney ▼7.54 - - -
CFML 321 Loans 6.20 - - -
CFML Home Loans 6.45 - - -
CFML Prime Loans 8.25 - - -
CFML Standard Loans 9.20 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 5.79 - -
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Owner Occ ▼6.95 5.99 5.75 5.69
Co-operative Bank - Standard ▼6.95 6.49 6.25 6.19
Credit Union Auckland 7.70 - - -
First Credit Union Special - 6.40 6.10 -
First Credit Union Standard 8.50 7.00 6.70 -
Heartland Bank - Online 7.49 5.65 5.55 5.55
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.60 ▼6.65 6.40 -
ICBC 7.49 5.99 5.65 5.59
Kainga Ora 8.39 7.05 6.59 6.49
Kainga Ora - First Home Buyer Special - - - -
Lender Flt 1yr 2yr 3yr
Kiwibank ▼7.25 6.89 6.59 6.49
Kiwibank - Offset ▼7.25 - - -
Kiwibank Special ▼7.25 5.99 5.69 5.69
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 8.44 5.95 6.09 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
SBS Bank 7.99 6.95 6.29 6.29
SBS Bank Special - 6.15 5.69 5.69
SBS Construction lending for FHB - - - -
Lender Flt 1yr 2yr 3yr
SBS FirstHome Combo 5.44 5.15 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.75 - - -
TSB Bank ▼8.19 6.49 6.49 6.49
TSB Special ▼7.39 5.69 5.69 5.69
Unity 7.64 5.99 5.69 -
Unity First Home Buyer special - 5.49 - -
Wairarapa Building Society 8.10 6.05 5.79 -
Westpac ▼7.39 ▼6.39 ▼6.09 ▼6.19
Westpac Choices Everyday ▼7.49 - - -
Westpac Offset ▼7.39 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - ▼5.79 ▼5.49 ▼5.59
Median 7.54 5.99 5.79 5.69

Last updated: 28 November 2024 9:27am

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