Talk Money: December 11
The banks wasted no time cutting their floating rates yesterday, after the Reserve Bank cut the Official Cash Rate to 2.5 percent.
ANZ, ASB, BNZ, KIwibank and Westpac all cut their rates.
Kiwibank has the lowest floating rate on offer at 5.65 percent.
There was little movement in fixed rates. But they range from as low as 3.99 percent for SBS's special one year rate to a five year rate of 4.99 percent, which is being offered by both The Co-Operative Bank and HSBC.
Some mortgage advisers believe that now is the time to fix. That is because the Reserve Bank has indicated that it has finished cutting rates.
But economists at ASB and Westpac believe the Reserve Bank will eventually have to cut the OCR to 2 percent. That is because they believe inflation will be weaker than the RBNZ expects.
The RBNZ wants to see inflation return to 2 percent by the end of next year. If that does not look like happening it will have to look at cutting the OCR again.
The dollar leapt in the wake of the announcement.
The kiwi was trading at 67.5 US cents at 6am this morning and it had risen to 92.59 Australian cents.
Normally, you might expect the dollar to lose ground after a rate cut. But the lift in the Kiwi was a sign that the markets believe the OCR might have reached its low point.
But it is not just our economy that influences the direction of our dollar.
Next week the US Federal Reserve is expected to lift rates for the first time in nine years.
If US rates start rising it will drive up costs for anyone borrowing money in the US markets. That could include New Zealand banks. So that could add to the costs of some longer term mortgage rates here in New Zealand.
Offsetting that are the very low rates on offer in places like Europe.
EVERYONE'S SITUATION IS DIFFERENT
What this shows is that picking the future direction of markets and interest rates is tricky.
Everyone's situation is different. The important thing is to make sure that you can meet the future costs of your mortgage if your circumstances change or rates move.
Mortgage advisers I have spoken to say they have clients who have been opting to fix now for as long as five years because they want certainty.
Some of their clients are opting to split their mortgage into portions, with some fixed and some floating.
The OCR announcement was made just before the latest house price figures were released by the Real Estate Institute.
The number of houses sold fell for the second month in a row. ASB economists say that sales fell 13.8 percent in November in Auckland. The Hawkes Bay fell 9.7 percent in seasonally adjusted terms, while the Waikato and Bay of Plenty dropped 6.7 percent.
ASB economists say the fall in Waikato and the Bay of Plenty was unexpected, and is something they will be watching closely.
THE FONTERRA PAYOUT
Another important bit of news was released yesterday.
Fonterra announced that is sticking with its forecast payout to farmers of $4.60 per kilogram of milk solids. It also predicts earnings per share of 45 - 55 cents, which would mean a total available payout of $5.05 - $5.15.
That contrasts with estimates from Dairy NZ of a breakeven point for farmers of $5.30.
The challenge for Fonterra is that there will need to be a lift in global prices for the payout to be achieved.
Watch the video for the full Talk Money segment.