Deposit rates raised, but full OCR reductions not passed on

This month saw the Reserve Bank of New Zealand cut the Official Cash Rate by 25 basis points (0.25 per cent), bringing it to a record low of just 2 per cent. State owned Kiwibank has responded by cutting its floating mortgage rates by 20-25 basis points effective immediately. However, ANZ Bank, Westpac and Bank of New Zealand have so far only passed on some of the reduction, cutting their floating rates by only 5-10 points.

There was some good news for savers though, with major banks announcing increases to deposit rates. Westpac are currently offering a special six month term deposit rate of 3.5 per cent, whilst ANZ and BNZ are both offering a term deposit rate of 3.6 per cent over 18 months. ASB is leading the charge with a term deposit of 3.65 per cent over the same time period.

The rise in savings rates comes as banks look to attract more deposits from customers, a more stable source of funding relative to the wholesale market. New Zealand’s property market is continuing to boom, resulting in lending growth far exceeding retail deposits in recent times.

Despite the increase in deposit rates, there has been disappointment over the major banks’ decision not to pass on the full OCR reduction to borrowers. The cuts have been introduced by RBNZ as part of their bid to keep inflation at an annual range of 1-3 per cent and boost spending, but unless the banks comply, this is unlikely to be entirely successful.

There are suggestions that the OCR could be reduced even further before the end of the year. In a statement released by the RBNZ, Reserve Bank Governor Graeme Wheeler said, “Our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range. We will continue to watch closely the emerging economic data.”

Now is a good time to review the home loan deal that you or your clients are currently on. I work with a panel of lenders, not just big banks, to source the right loan for my client’s personal scenario. Every loan requirement is different so please contact me to talk about your situation to see if I can find you a better deal with the current low rates.