Official cash rate cut

(Getty)
(Getty)

The official cash rate has been cut to 2 percent, a cut of 25 basis points and a new all-time low. 

The Reserve Bank has highlighted slow global growth, low interest rates and the high dollar behind the decision.

"The high exchange rate is adding further pressure to the export and import-competing sectors and, together with low global inflation, is causing negative inflation in the tradables sector." 

The Reserve Bank wants to cut rates to bring down the value of the New Zealand dollar and to try to lift inflation towards its medium term target of 2 percent.

This is nothing new from the Reserve Bank which has once again noted strong migration numbers, construction activity and tourism as the reasons behind strong domestic growth.

But the housing market has not been forgotten. The Bank has assured it is looking into policy that will minimise financial risk across the board.

"House price inflation remains excessive and has become more broad-based across the regions, adding to concerns about financial stability."

The Reserve Bank has also indicated another cut in five weeks' time, saying monetary policy will continue to be "accommodative".

"Further policy easing will be required to ensure that future inflation settles near the middle of the target range."

Economists had predicted the Reserve Bank (RBNZ) would cut the OCR by 0.25 percent today and signal that at least one more cut of 0.25 percent was likely before the end of the year.

Economists at BNZ went further, predicting that the OCR would be lowered to 1.5 percent by the end of the year, matching the current OCR in Australia.

The question now is how much of the rate cut will be passed on to mortgage?

The Reserve Bank cut the OCR by 0.25 percent in December 2015 and by another 0.25 percent in March. But of that total cut of 0.5 percent the trading banks have only lowered mortgage rates by around 0.35 percent.

They say their borrowing costs have gone up. There was also some adjustment of rates ahead of today's OCR announcement.

The situation is the same in Australia.

Over there the banks are facing growing criticism about their failure to pass on all of the cuts to their mortgage customers.

Labour leader Bill Shorten has called for an inquiry into the banks' actions.

That prompted the New Zealand born boss of Australia's biggest and most profitable bank, CBA, to take to Twitter yesterday to defend their actions.

Ian Narev said he had to balance the interests of borrowers, savers and Commonwealth Bank of Australia's shareholders.

The tweet followed the announcement that CBA had made a record AUS$9.45 billion profit.

People with a mortgage want interest rates to go down. But that is not the case for people with savings accounts.

In Australia CBA is lifting some term deposit rates to attract savers who otherwise might be tempted by other investment options like the sharemarket.

CBA's New Zealand subsidiary ASB made a net profit of NZ$913 million.

Newshub.

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