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Community transmission could force negative OCR: Kiwibank

Community transmission of Covid-19 could force the Reserve Bank to slash the Official Cash Rate to negative territory, according to economists at Kiwibank.

Monday, July 13th 2020, 5:35PM

In their latest weekly report, the economists say a "shock" outbreak, and subsequent return to lockdown, could cause "the RBNZ to embark on a path below zero". 

According to the team, the worst-case scenario would mean a 75 basis point cut to -0.50% for the central bank rate. 

New Zealand continues to win the battle against Covid-19, however, and economists say the Reserve Bank will stick to its quantitative easing programme, unless conditions drastically change. 

After months of growing enthusiasm for negative rates across the market, economists now believe they are an outside bet.

The Kiwibank team, lead by Jarrod Kerr, (pictured) expect wholesale swap rates to hold steady next year, near 0.25% "as the RBNZ’s on-hold guidance likely extends into 2022".

QE, through the RBNZ's Large Scale Asset Purchase programme, is viewed as the preferred method to stimulate the economy and keep interest rates down. 

Kiwibank expects the Reserve Bank to expand its LSAP programme into 2022 in August, and boost the total amount towards $100 billion. "The program is likely to hit $120bn into 2023, the economists said.

The economists believe the next best policy tool wold be a term funding facility for lenders, as seen in Australia. 

"Cheap term funding will lower all bank rates immediately," the bank said. 

Kiwibank also noted a strong resurgence in the housing market in June. 

"The anecdotes of recent weeks appear to be true, with both sales and house prices growth jumping in June. Large swathes of the economy have resumed business as usual, which seems to have been mirrored by the housing market."

The bank suggests a "first home buyer binge", encouraged by the end of LVR restrictions, is behind the strong June data. 

 

Tags: Kiwibank

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 5.44 - - -
AIA - Go Home Loans 7.99 5.99 5.69 5.69
ANZ 7.89 6.59 6.29 6.29
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 5.99 5.69 5.69
ASB Bank 7.89 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 7.94 - - -
BNZ - Rapid Repay 7.94 - - -
BNZ - Std 7.94 5.99 5.69 5.69
BNZ - TotalMoney 7.94 - - -
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 7.65 5.99 5.75 5.69
Co-operative Bank - Standard 7.65 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 8.90 7.00 6.50 -
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 7.75 6.89 6.59 6.49
Kiwibank - Offset 8.25 - - -
Kiwibank Special 7.75 5.99 5.69 5.69
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 8.44 ▼6.39 ▼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 8.69 6.79 6.49 6.49
TSB Special 7.89 5.99 5.69 5.69
Unity ▼7.64 5.99 5.69 -
Unity First Home Buyer special - 5.49 - -
Wairarapa Building Society 8.50 ▼6.19 ▼5.79 -
Westpac 8.39 6.89 6.39 6.39
Westpac Choices Everyday 8.49 - - -
Westpac Offset 8.39 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 6.29 5.79 5.79
Median 7.99 6.17 5.79 5.69

Last updated: 30 October 2024 9:36am

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