OCR unchanged

The Reserve Bank has left the OCR at it’s record low today, as expected.

Official Cash Rate unchanged at 2.25 percent

Statement by Reserve Bank Governor Graeme Wheeler:

The Reserve Bank today left the Official Cash Rate unchanged at 2.25 percent.

The outlook for global growth has deteriorated over recent months due to weaker growth in China and other emerging markets. Prices for some commodities, including oil, have picked up but remain weak.

Monetary conditions are extremely accommodative internationally, with considerable quantitative easing and negative policy rates in some countries. Financial market volatility has eased in recent weeks, but markets continue to watch closely the policy settings of major central banks.

Domestically, the economy is being supported by strong inward migration, construction activity, tourism, and accommodative monetary policy. Dairy export prices have improved slightly, but are below break-even levels for most farmers.

The exchange rate remains higher than appropriate given New Zealand’s low commodity export prices. A lower New Zealand dollar is desirable to boost tradables inflation and assist the tradables sector.

There are some indications that house price inflation in Auckland may be picking up. House prices remain at very high levels and additional housing supply is needed. Housing market pressures are building in some other regions.

There are many uncertainties around the outlook. Internationally, these relate to the prospects for global growth, particularly around China, and the outlook for global financial markets. The main domestic risks relate to weakness in the dairy sector, the decline in inflation expectations, the possibility of continued high net immigration, and pressures in the housing market.

Headline inflation remains low, mostly due to low fuel and other import prices. Annual core inflation remains within the target range. Long-term inflation expectations are well-anchored at 2 percent. However, as we have previously noted, there has been a material decline in shorter-term expectations.

We expect inflation to strengthen as the effects of low oil prices drop out and as capacity pressures gradually build. Monetary policy will continue to be accommodative. Further policy easing may be required to ensure that future average inflation settles near the middle of the target range. We will continue to watch closely the emerging flow of economic data.

New Zealand still has hardly any inflation and it’s expected to take until the first quarter of 2018 until it gets up into the target range:

CPIForecast

 

 

OCR down, mortgage rates down

The Official Cash Rate was dropped to 2.5% yesterday to the lowest rate ever, down from 2.75%. It is thought that this will be as low as it goes.

Mortgage rates also dropped again. Kiwibank has the best floating rate, reported to be 5.65% (their website still shows it at 5.99%).

Westpac currently offers the best fixed term rate special, 4.24%  for 2 years.

NZ Herald reports: Now’s the time to fix your home-loan rate, says expert

Homeowners are being urged to fix their mortgages now to make the most of record-low interest rates – which experts say are at rock bottom.

BNZ director of retail and marketing Craig Herbison said homeowners stood to miss out on years of savings if they didn’t take advantage of the lower rates, which had likely reached their plateau.

Loan Market mortgage adviser Bruce Patten said further cuts to the cash rate were unlikely and now was the time to fix.

“The message from the Reserve Bank was, ‘Don’t expect a cut next year’. Our advice to people in the last few weeks has been, ‘If you want certainty, now is the right time to fix’.”

Rates are close to half what they were a few years ago.

Homeowners should be looking to fix their mortgages for two or three years, he said. Rates for those terms were between 4.2 and 4.5 per cent a year – a big saving for people who might have fixed for one year 12 months ago, when one-year rates were around 6 per cent.

A homeowner with a $400,000 mortgage taken over 30 years could potentially save $372 a month, or $4464 a year, by fixing at 4.5 per cent, compared to 6 per cent.

So a $200,000 mortgage over 30 years could save abour $180 per month, about $2200 per year.

This will help many homeowners, but will also benefit people in business.

Presumably some dairy farm owners will be getting mortgage payment relief from lowering interest rates that will in part at least offset the low dairy prices.