Borrowers unlikely to see full cut
Reserve Bank expects this morning’s OCR cut to be passed on to, but that's unlikely to happen. ANZ has already said it is only passing on one fifth of the central bank's cut to its customers.
Thursday, August 11th 2016, 12:23PM
by Miriam Bell
Following the OCR announcement this morning, Reserve Bank Governor Graeme Wheeler told media he would like to see most of the 25 basis point OCR cut passed on to borrowers.
However, Wheeler said it was a complicated assessment for banks – particularly given the competitive nature of the market.
He said that international funding costs have been rising and there has been more credit growth than deposit growth.
Encouraging deposit growth will require higher interest rates over time to attract more deposits, he said.
“But it’s up to the banks to work out if they want to offer lower interest rates to borrowers or attract more deposits through higher interest rates.”
The Reserve Bank didn’t want to end up directing banks on pricing, Wheeler said.
Immediately after the OCR announcement, ANZ announced it would be passing on 5 basis points of the cuts to its customers.
It will lower floating home loan rates by 0.05% to 5.59% and it will also reduce floating rates for commercial, agri and business loans by 0.15%.
At the same time, it will increase rates for some term deposits by up to 0.30% to 3.60%.
ANZ CEO David Hisco said dramatically lowering lending rates would only throw fuel on the fire in an overheated housing market.
“That would be irresponsible and negate any economic benefit to New Zealand and drive up the country’s debt as banks seek expensive offshore funding for increasing home loan books.”
He said ANZ would monitor the impacts of this decision and may adjust its market position in future to ensure it remained competitive.
ANZ’s chief economist, Cameron Bagrie, said that attention will now be on how much of the Reserve Bank’s cut is passed on.
“It won’t be the full amount. That will likely remain the case with each progressive nudge lower in the OCR,” he said.
Prior to the 25 basis point OCR cut this morning, there was speculation the Reserve Bank might opt for a 50 basis point cut.
However, Wheeler dismissed this, saying there had been no serious consideration of a 50 basis point cut.
This was because the Reserve Bank simply didn’t it was justified or necessary, he said.
In the OCR media conference, Wheeler also touched on the Reserve Bank’s deployment of macro-prudential tools in a bid to reduce the financial stability risks posed by the housing market.
Wheeler said that work on the introduction of debt-to-income ratios was progressing and the Reserve Bank has been talking with the Finance Minister, Treasury and bank executives.
“We are likely to be reporting to the Minister in the next week or two, asking to get an amendment to the current Memorandum of Understanding to allow debt-to-income ratios to be used as a macro-prudential measure.”
But debt-to-income ratios are unlikely to be put in place this year, he said.
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