No Change to Official Cash Rate

The OCR was left unchanged at 2.50% today. The Reserve Bank Governor went on the attack in an attempt to hammer down the NZ dollar and to press interest rate market players to reduce their expectations that the OCR would be raised in the very near future.

“In contrast to current market pricing, we see no urgency to begin withdrawing monetary policy stimulus, and we expect to keep the OCR at the current level until the second half of 2010.”

He managed to obtain both, although for how long remains to be seen. The dollar was down against most of our trading partners and interest rate swaps were also down. At the time of writing the 1 year fixed interest rate swap was down from 3.59% to 3.47% and the 2 year from 4.68% to 4.52%.

The ASB Bank, in a market commentary released this afternoon, is forecasting the first OCR rate hike to occur in April 2010. They have indicated an expectation that the 1st 3 increases will be moves of 0.50%. Based on this one could expect very rapid rises in home loan floating interest rates next year.

BNZ and ANZ have announced their annual results over the past two days. They make for some interesting reading (for a slightly sceptical mortgage broker ;-)) once you ignore the headline figure. 

The ANZ Chief Executive has been quoted as saying the decrease in net interest margins was as a result of “….intense deposit competition and higher wholesale funding costs, as well as the timing lag in re-pricing fixed rate lending and the increased costs from early repayments of fixed rate mortgages”.

Her boss in Australia had a slightly different take. “We have a great NZ franchise but banks in NZ seem to be doing their best to price themselves out of business and the regulators seem intense on finishing the job.”

http://www.theaustralian.news.com.au/business/story/0,28124,26276257-36418,00.html

 

Home Loan Fixed Interest Rates on the Rise

ANZ Bank, the largest lender in the country, by virtue of its ownership of The National Bank, raised home loan fixed interest rates this week. The increases were hefty with 1 year fixed up 0.45% to 5.95%, 18 months fixed up 0.40% to 6.49% and 2 years fixed up 0.44% to 6.99%.

Today the 1 year swap rate is at 3.52% and the 2 year swap rate is at 4.37%.

The 2 year home loan fixed interest rate at 6.99% less the 2 year swap rate of 4.37% leads to a margin of 2.62%. Its from this margin that the bank covers some of its expenses, some of its profits, and reflects the costs of borrowing a proportion of its required funds offshore.

With home loan fixed interest rates on the rise over the past 5 months we have found ourselves making extensive use of fixed interest rate lock agreements.

Get in touch for further information.