August 11, 2016
Friday 12 August 2016
The RBNZ cut the OCR (official cash rate) by 25 basis points (0.25%) to a record low 2.0% yesterday.
How does that affect you? The short answer is: “not much”. The OCR is, in theory, linked directly to the floating rates, so it should signal a 0.25% drop in floating rates. But in the last 75 points of drops, the banks have only delivered about half of that (0.3%) to the consumers in mortgage floating rate reductions. In this instance, both ANZ and Westpac moved quickly to cut their rates after the announcement, but by much less than the 25 points. They cut 5 and 10 points respectively. The Reserve Bank expects the banks to pass cuts onto consumers but little interest in directing the banks to do so. They don’t want to be dictating bank pricing, as they believe that competition between banks will dictate how much they can and do move.
But the main reason it won’t affect you is that you probably have the bulk of your borrowing on a fixed rate (like most of NZ). As a result, your rate won’t change until your existing fixed rates expire. The RBNZ Governor did mention that additional macro-prudential tools were being worked on, specifically the debt to income ratio limits. This would be an additional rule the RBNZ could impose on banks to restrict individual borrowing to a percentage of a borrower’s income. But this would be unlikely to come into play this year.
The outlook is for another one, or possibly two 25 point cuts this year. Next announcement is September 22nd, six weeks from now. Click Here for the full RBNZ Statement
Opinion by Brad Jones, enableMe’s new Banking and Lending Manager