Just when it looked like we had hit the top of the interest rate cycle there have been some signs suggesting that we may not be there yet.
The Reserve Bank has indicated that they still believe that the job has been done and a cash rate of 5.50% is enough which they retained at the most recent review on August the 16th. They did however acknowledge that there is an increased chance of one further increase being required. At present the market is pricing in about a 40% increase of this happening in the first half of 2024 if inflation does prove more stubborn to contain that has been expected.
There is starting to be some differences in expectation around this as well with Westpac and ANZ economists leaning towards thinking an increase may be required versus Kiwibank Chief Economist Jarrod Kerr who is adamant that enough has been done.
Recent analysis from the Reserve Bank showed that the average New Zealand mortgage sits at a rate of about 5.3% with this expected to rise to circa 6.2% by mid next year. This does signal a lot of additional pain still to hit the market as this will pull further discretionary money from New Zealand household’s budgets which will unfortunately mean increased business failures in industries which rely on these such as retail and hospitality.
ASB has had their mortgage rates significantly above the rest of the market until recently. The CEO of Commonwealth Bank of Australia Matt Comyn who is ASB’s parent has been making comment about how competitive the market is with ASB making less than half the interest rate margin that what CBA makes on home loans in Australia. ASB were the first to pull back on the cash contributions offered and have deliberately decided to grow their home loan book at a lower rate than other banks.
It is unlikely the New Zealand public will have much sympathy given ongoing media commentary here about bank profits.
ANZ in the last few days has pushed up to rates like that of ASB at the same time increasing some of the deposit rates they have on offer. ANZ is being more competitive than ASB is regards to the cash contributions they will offer to attract new business.
With mortgage volumes still being low across the banking market borrowers should use the opportunity to review their lending to ascertain if better rate options exist than what their current lender is offering.
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26 August 2023