There were no surprises with Dr Bollard's announcement of a record low interest rate of 3%, down from 3.5% but he did suggest that the days of big cuts are over, with New Zealand not expected to head in the direction of near zero policy rates of some other countries.Any cuts from now on will be smaller, so those wanting to lock in fixed mortgages will be looking for that magical cut to 2.5% that is expected by the middle of the year.
Let's hope our banks play ball.
Interest Rates around the world (how we compare):
New Zealand - 3 per cent
European Central Bank - 1.5 per cent
Bank of England - 0.5 per cent
Australia - 3.25 per cent
US Federal Reserve - 0-0.25pc
Japan 0.1 per cent
Bank of England - 0.5 per cent
Australia - 3.25 per cent
US Federal Reserve - 0-0.25pc
Japan 0.1 per cent
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Trouble is, Farmgirl, though the short term rates will come back a bit more on the back of the OCR, long term rates are already starting to trend up, so it's a problem of trying to forecast how long the low variable rates will last as compared to fixing long now. If I was in the UK or US, with the amount of money they are printing then I would be expecting hyper (monetary) inflation in two or so years time, quite possibly less, so perhaps a year at best? Key has been a bit more moderate, however, Bollard has now once mentioned 'quantitative easing', a disaster, but there you go, a real threat given he is saying the OCR can't go below 2.5%, so same scenario here as UK and US.
I'm not advising any policy :) but outside the seasonal financing, those long term rates are looking not too bad, and perhaps, just perhaps - I'm making no prediction, by the time the OCR is on 2.5%, the longer term rates, under some realistic scenarios, will be more expensive than they are now. Possibly, not definitely. Choices, choices. I see Bernard Hickey is saying to be looking at the long term from about now, and over perhaps the next month.
Also, and I'm probably dumb to post under my own name now, but I realise the bankers have been getting a lot of flack for many farmers' short term rates still cushioning the banks with quite high premiums, but then again, some farm balance sheets are very strained and the risk premiums the banks are using are understandable and probably justified. While it may well be right that the banks were throwing money at the farming sector up to as little as ten months ago, not one farmer was forced into taking on more debt. The banks have been caught as flat footed at the strength and speed of the economic crisis as their customers - and there is the one point of criticism, for they perhaps 'c'ould have known better.
I'll slink off now :)
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