Interest Rate Chat - Recent Developments and Implications
The past few weeks have seen significant data releases, sparking a flurry of discussions about interest rates among bankers, economists, and accountants. Here's a breakdown of the latest developments and what they might mean for borrowers and savers.
RBNZ OCR Announcement
Date: Wednesday 10th July 2024
Overview: The Reserve Bank of New Zealand (RBNZ) reviewed the Official Cash Rate (OCR). The announcement, unexpectedly brief and without accompanying forecasts, had a notably dovish tone.
Key Points:
The exact wording of the RBNZ release was titled "Inflation approaching target range" and the final sentences were: "The Committee agreed that monetary policy will need to remain restrictive. The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures."
This shift in tone, more optimistic about the timeline for inflation decline, stirred market speculation about the potential for earlier-than-expected rate cuts.
Consumer Price Index (CPI) Update
Date: Wednesday 10th July 2024
Overview: Stats NZ reported that the Consumer Price Index (CPI) fell to 3.3% in the year to June 2024, down from 4% in the March Quarter. This measure of inflation, which the RBNZ aims to keep between 1 - 3%, was lower than anticipated by both major banks and the RBNZ, which had forecasted a 3.6% annual rate in May.
Market Reactions and Predictions
The unexpected CPI drop and the RBNZ's dovish tone have led economists and the market to revise their predictions. The consensus has shifted to anticipating a cut in the OCR by November 2024.
Impact on Retail Mortgage and Deposit Rates
- Westpac: Moved mortgage rates down even before the CPI release.
- ANZ: Followed suit post-CPI release, reducing both mortgage and deposit rates.
- BNZ: Also dropped deposit rates in response to these developments.
What this Means for Borrowers and Savers
Borrowers:
- Relief is on the horizon: With major banks already lowering mortgage rates, there is a tangible sign of relief for borrowers.
- Timeline: Given the range of fixed-rate periods, it may take 12-18 months for these rate cuts to fully benefit all borrowers, similar to the delayed impact experienced during rate increases.
Savers:
- Lower Deposit Rates: As mortgage rates drop, so do deposit rates, impacting returns for savers.
- Strategy: It's advisable for savers to shop around for the best rate and diversify maturities to optimise returns in a decreasing rate environment.
Moving Forward
While a bit of relief for borrowers is on the horizon, we recommend preparing for a gradual reduction in rates, contrasting with the rapid increases seen previously. For savers, it's essential to actively seek the best available options to maintain returns.
Please note that while we strive to provide valuable insights and information, this article is of a general nature and does not constitute financial advice.
Get in Touch
If you would like to discuss how these interest rate changes may impact your financial situation, please get in touch with our team. We are here to help you navigate these updates and ensure your financial strategies remain robust and compliant.
