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14-06-2012

Bollard keeps rates on hold; OCR cut an outside chance

Landlords.co.nz

Reserve Bank governor Alan Bollard's latest monetary policy statement suggests mortgage rates aren't going up any time soon although the likelihood they might fall further remains an outside chance.

By Jenny Ruth

As expected, Bollard left his official cash rate (OCR) unchanged at its record low of 2.5% and the central bank's forecasts imply it won't rise before the second quarter of next year.

“Rate cuts aren't part of their (the Reserve Bank's) central view going forward,” says Nick Tuffley, chief economist at ASB Bank.

“A rate cut is still on the cards but it's very much a contingency as opposed to the risk some people thought it was,” Tuffley says. He rates the risk of a rate cut, likely in response to Europe's crisis worsening significantly with either a country default or Greece and possibly other countries leaving the euro, at one in three.

Stephen Toplis at Bank of New Zealand says the wholesale financial market currently has a 13% chance of an OCR cut in July priced in.

While wholesale rates were down slightly across the board, it was difficult to tell whether that was in reaction to Bollard's statement or to international ratings agency Moody's downgrading Spain's credit rating at about the same time.

“It's right to price in a chance of an easing if your fundamental view is that Europe's going to implode,” Toplis says.

Mortgage rates are “certainly not going up. Whether they fall any further or not will depend on the competitive and relative position of the banks and their cost of funds,” he says.

Dominick Stephens, chief economist at Westpac, says a significant blow-up in Europe would likely lead to a very significant drop in the OCR with the next significant event being Greece's second general election this year on June 17.

However, the statement put paid to the idea Bollard would cut the OCR simply on the risk of a blow-up in Europe, Stephens says.

Tags: alan bollard - nick tuffley - dominick stephens - stephen toplis

Source: Landlords.co.nz

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