The Reserve Bank (RBNZ) is launching a quantitative easing (QE) programme in an attempt to reduce interest rates and inject money into the economy.
This means it will buy Government bonds owned by investors, up to the value of $30 billion, over the next year. $30 billion is equivalent to 10% of Gross Domestic Product (GDP).
The RBNZ said the "negative economic implications of the coronavirus outbreak have continued to intensify" and its Monetary Policy Committee (MPC) agreed "further monetary stimulus is needed to meet its inflation and employment objectives".
By buying Government bonds, the RBNZ increases demand for these bonds, which in turn reduces their yield interest rates.
Because a number of the interest rates in the economy are calculated off the yield interest rates for Government bonds, a move to reduce these rates will enable retail banks to lower their mortgage and business lending rates.
Investors (including retail banks) also receive a cash injection when they sell Government bonds to the RBNZ.
The MPC saw the need to launch this bond buying programme because financial conditions tightened “unnecessarily” over the past week.
“Heightened risk aversion has caused a rise in interest rates on long-term New Zealand government bonds and the cost of bank funding,” the MPC said.
Its Official Cash Rate (OCR) cut from 1% to 0.25% last Monday wasn't as effective as it should've been in passing through lower interest rates to borrowers.
From bad to worse
The MPC said depreciation in the exchange rate has “helped ease conditions at the margin but not sufficiently”.
It said the Government’s $12.1 billion rescue package (including wage subsidies, tax changes, benefit increases, etc) has delivered “significant spending stimulus” in addition to its OCR cut.
However measures put in place to restrict the spread of the virus - travel restrictions, mass gathering bans, etc - will add to inflation and employment falling below the RBNZ's targets in the near term.
“Globally, the number of people infected with the virus has increased rapidly and measures to contain the outbreak have become more restrictive. Global trade and travel, and business and consumer spending have been curtailed significantly," the MPC said.
“The severity of the impacts on the New Zealand economy has increased. Weaker global activity is affecting the economy through a range of channels, not just reduced trade."
The RBNZ is tasked with keeping inflation between 1% and 3% on average over the medium term, with a focus on keeping future average inflation near the 2% target midpoint. There is no numerical target for employment, with the RBNZ using a range of different indicators to assess the maximum sustainable level.
According to Statistics New Zealand, the December year Consumers Price Index was 1.9%, and December quarter unemployment was 4.0%, but is expected to rise sharply as the economic downturn caused by COVID-19 bares its teeth.
A 'necessary move'
Westpac NZ economists Dominick Stephens and Michael Gordon described the RBNZ action as "a necessary move."
"The response to the COVID-19 outbreak has escalated further in recent days, pointing to an even more severe impact on economic activity. On top of this, dysfunction in the bond market has actually seen a rise in longer-term interest rates since the RBNZ’s 75 basis points Official Cash Rate cut last Monday, hindering its pass through to retail interest rates," the Westpac economists said.
"A $30 billion programme represents about half of the government bonds that are currently available in the market, excluding inflation-linked bonds. But issuance will be ramping up significantly to fund the $12 billion support package that the Government announced last week, and it’s likely that government spending will have to be expanded further. We think that the RBNZ will end up holding about a third of bonds on issue after 12 months.
"At around 10% of annual GDP, the program is similar in size to the quantitative easing programs that other countries announced during the Global Financial Crisis, which were effective in bringing longer-term interest rates down.
"This does not change our forecast of a 3.1% decline in GDP. Rather, it was a necessary step to prevent an even worse outcome."
'An excellent chance of success'
The RBNZ plans to start buying bonds on Wednesday via an auction process, with auctions held every Monday, Wednesday and Friday. ANZ economists point out it's a "front-loaded" move by the central bank.
"At this stage the RBNZ has said that it intends to kick off at a pace of $750 million per week, IE $250 million per thrice-weekly auction. That’s significant as it’s front-loaded, as has been seen offshore," they said.
"Indeed, $750 million per week represents an annualised pace of buying of around $39 billion, which is twice the pace of issuance flagged for fiscal Q2, currently flagged as $5 billion, which is $20 billion annualised.
"The entire package also exceeds the $20 billion to $25 billion in bond issuance that we expect could be coming in fiscal 2021 and 2022 given the degree of fiscal support required.
"The QE package is also large in relation to GDP, around $300 billion, and the overall number of NZGBs [New Zealand Government Bonds] on issue, around $80 billion, and that alone gives the programme an excellent chance of success.
"The low starting point of Crown debt, around 20% of GDP in net terms, and the RBNZ’s small balance sheet by international standards gives enormous flexibility.
"Hypothetically, if the RBNZ did buy every NZGB on issue, it would still have a smaller balance sheet than some of the major trading banks. That’s not going to happen, but it demonstrates how much capacity the RBNZ has.
"Of course, all of this has now dawned on the market. Since the announcement, the 10-year bond yield has fallen from a closing level of 1.47% on Friday to below 1% this morning, and we expect yields to continue falling."
Robertson onboard
Finance Minister Grant Robertson has signed a memorandum of understanding and a letter of indemnity with the RBNZ to enable it to undertake the bond buying programme.
This decision remains an independent one for the RBNZ. But, because the RBNZ is part of the Crown’s balance sheet, it is necessary for an indemnity to be signed by the Minister of Finance.
In addition, a Memorandum of Understanding has been created to establish a framework for this decision, and any future decisions on alternative monetary policy.
The move doesn’t affect core Crown net debt, or the Government’s operating balance other than reducing finance costs for the Government’s borrowing programme
Large Scale Asset Purchases have been widely used by central banks around the world in recent years, including in the United Kingdom, Eurozone, the United States, Sweden and Japan. The Reserve Bank of Australia launched a programme of Government bond purchases on the secondary market last week.
Here is a statement from the RBNZ:
The Monetary Policy Committee (MPC) has decided to implement a Large Scale Asset Purchase programme (LSAP) of New Zealand government bonds.
The negative economic implications of the coronavirus outbreak have continued to intensify. The Committee agreed that further monetary stimulus is needed to meet its inflation and employment objectives.
Globally, the number of people infected with the virus has increased rapidly and measures to contain the outbreak have become more restrictive. Global trade and travel, and business and consumer spending have been curtailed significantly.
The severity of the impacts on the New Zealand economy has increased. Weaker global activity is affecting the economy through a range of channels, not just reduced trade. Domestic measures to contain the outbreak of the virus are also reducing economic activity. Employment and inflation are expected to fall relative to their targets in the near term.
In addition, financial conditions have tightened unnecessarily over the past week, reducing the impact of the low OCR on achieving the MPC’s mandate. Heightened risk aversion has caused a rise in interest rates on long-term New Zealand government bonds and the cost of bank funding.
The Committee has decided to implement a LSAP programme of New Zealand government bonds. The programme will purchase up to $30 billion of New Zealand government bonds, across a range of maturities, in the secondary market over the next 12 months. The programme aims to provide further support to the economy, build confidence, and keep interest rates on government bonds low.
The Committee will monitor the effectiveness of the programme and make adjustments and additions if needed. The low OCR, lower long-term interest rates, and the fiscal stimulus recently announced together provide considerable support to the economy through this challenging period.
Here is a record of the MPC's meeting:
20-22 March 2020
On Friday 20 March the Chair of the MPC spoke with the external members of the MPC by phone to update them on the Bank’s financial stability activities and the interaction with monetary policy. These activities were public. The external MPC members were made aware of what the other members of the Committee were involved in with regard to the Bank’s ongoing support to financial market functioning and stability.
The Chair and the external members also discussed the fact that any further monetary stimulus provided by the Bank would likely be through the purchase of government bonds in a Large Scale Asset Programme (LSAP). All MPC members were also made aware that monetary policy recommendations were being sent to them for a decision soon, and that there would likely be an ongoing series of Bank monetary and financial stability actions as the economic impacts of COVID-19 unfolded.
MPC members received papers on Friday evening containing staff advice about the ongoing deterioration in the economic situation relating to COVID-19.
The initial view of staff was that an MPC decision on their recommendations would be preferable by Sunday 22 March 2020. On Saturday 21 March, following advice from the Reserve Bank’s financial markets team as to their operational and legal readiness to implement a LSAP, the MPC Chair called for an MPC decision to be made by email. An in-person meeting was seen as unnecessarily risky given current official guidance about social distancing.
There was agreement amongst members to proceed in this manner and by Sunday morning there was a consensus MPC agreement to:
- Provide further monetary policy stimulus through a Large Scale Asset Purchase (LSAP) programme of New Zealand government bonds in the secondary market.
- The initial scale of the LSAP programme is up to $30 billion of government bonds, across a range of maturities, to be purchased over the next 12 months.
- Communicate the decision on the morning of 23 March.
This decision was made in response to staffs’ briefing material to the committee indicating the increasing severity of the economic situation and deterioration in financial market conditions.
It was noted that the Government’s fiscal package announced on March 17 has delivered significant spending stimulus in addition to the monetary stimulus announced on March 16. However, the health and safety measures announced by governments over prior days - related to the reduction in travel and large gatherings globally - would add to inflation and employment falling below target in the near term.
Returning inflation and employment to target over the medium term will require support from monetary policy. How much stimulus will depend on how the COVID-19 pandemic progresses and the actions to abate the virus.
The committee considered a range of scenarios, and it was apparent that in light of the evolving situation more stimulus was needed.
Committee members’ attention was drawn to the tightening in financial conditions over the past week. Interest rates on long-term New Zealand government bonds had risen significantly, affecting the cost of wholesale funding for any banks accessing the market at this time. Such increases mean that the reduction in the OCR announced on March 16 was not effectively passing through into interest rates faced by borrowers. The depreciation in the exchange rate had helped ease conditions at the margin but not sufficiently.
The staff briefing material also included updates on global economic developments and other countries’ economic policy responses to the pandemic.
Committee members were advised that the recommendation of a $30 billion LSAP program reflected a current assessment of the maximum effective stimulus achievable while maintaining a well-functioning government bond market. Staff noted the importance for liquidity to remain in the bond market and for multiple market makers.
Staff recommended that purchases up to $30 billion should be spread over at least 12 months and across a range of maturities, in order to leave enough liquidity for the New Zealand government bond market to function effectively. And that the Bank’s communications should emphasise that the LSAP programme would provide confidence and support for the government bond market, and monetary stimulus through keeping longer-term interest rates low.
Members noted that the exact amount of stimulus needed is difficult to quantify, and that the range of economic scenarios they had seen were consistent with a need to deliver significant stimulus.
Briefing material also included information about the implications of an LSAP program to the Reserve Bank’s balance sheet, and about the governance arrangements in place between the Reserve Bank and the Minister of Finance. It was noted that MPC agreement would be sought if further stimulus was needed to be provided, either by increasing the size of the LSAP programme, or through the use of other instruments.
The Committee reached a consensus to:
- Approve a programme of Large Scale Asset Purchases to a total volume of $30 billion of NZ Government bonds over 12 months
- Delegate to staff the implementation decisions of the LSAP programme
- Communicate the program in terms of the total volume to be purchased
Participants:
- Reserve Bank staff: Adrian Orr, Geoff Bascand, Christian Hawkesby, Yuong Ha
- External: Bob Buckle, Peter Harris, Caroline Saunders
- Observer: Caralee McLiesh
- Secretary: Gael Price
More information:
- Alternative Monetary Policy Tools
- MOF/RBNZ Memorandum of Understanding regarding the use of alternative monetary policy tools (PDF 883KB)
- Letter from the Reserve Bank to the Minister of Finance (PDF 76KB)
- Letter of Indemnity from Minister of Finance (PDF 706KB)
Here is a statement from Robertson:
The Government is backing the Reserve Bank’s latest action to support the economy by reducing longer-term interest rates, meaning lower costs for businesses and mortgage holders, and a lower currency to help our exporters.
The Minister of Finance has signed a memorandum of understanding and a letter of indemnity with the Reserve Bank to enable it to undertake a programme of large scale purchases of New Zealand Government bonds on the secondary market up to a value of $30 billion over the next 12 months, to reduce interest rates and inject money into the economy.
“This is part of our strategy to mobilise all arms of New Zealand’s economic infrastructure in our fight against the COVID-19 virus,” Finance Minister Grant Robertson says.
“We are all uniting together – the Government, the Reserve Bank, private businesses and the retail banks – to cushion the impact on New Zealand from this global pandemic.”
Large Scale Asset Purchases* (LSAPs) have been widely used by central banks around the world in recent years, including in the United Kingdom, Eurozone, the United States, Sweden and Japan. The Reserve Bank of Australia launched a programme of Government bond purchases on the secondary market last week. The technique is also known as Quantitative Easing.
This decision remains an independent one for the Reserve Bank. But, because the Reserve Bank is part of the Crown’s balance sheet, it is necessary for an indemnity to be signed by the Minister of Finance.
In addition, a Memorandum of Understanding has been created to establish a framework for this decision, and any future decisions on alternative monetary policy.
The move does not affect core Crown net debt, or the Government’s operating balance other than reducing finance costs for the Government’s borrowing programme. Further details can be found on the Reserve Bank’s website, here.
Note
These purchases work by first reducing the long-term interest rates the Government borrows at, as the Reserve Bank buys Government bonds owned by investors, including the retail banks. This increased demand for Government bonds reduces their ‘yield’ interest rates.
The investors – including banks – also receive a cash injection as they receive the proceeds from selling their Government bonds to the Reserve Bank.
A lot of interest rates in the economy are calculated off the yield interest rates for Government bonds, meaning any move to reduce these rates will also flow through to those charged by banks for business lending and mortgages.
This is in addition to the Reserve Bank’s independent decision cut to the Official Cash Rate (OCR) last week, which was focussed on bringing shorter-term interest rates down.
96 Comments
In response to what is an absolutely clear and obvious collateral shortage, the very bottleneck I’ve been writing about for the last couple of years, and I’m just some nobody with an internet connection, these absolutely corrupt morons are just repeating all the same mistakes from the first time. They’re repeating 2008 because 2008 worked out so well? Yeah, no.
Jay Powell needs to be fired yesterday, last month, along with all the other empty suits. Unfortunately, Bill Dudley has retired and I don’t even care anymore who replaced the guy who replaced the guy who replaced Brian Sack who replaced him. It might as well still be Bill Dudley in that job; perfect Dudley elasticity, at least, an overwhelming supply of them regardless of demand.
What needs to happen is something like a Discount Window – for collateral. A program that is open to financial counterparties all around the world, almost like combining dollar swap lines with a Discount Window except where US T-bills are being offered rather than stupid, inert, useless bank reserves.
Forget using Primary Dealers; they are part of the problem, in many ways the biggest problem piece. Forget about lines with other central banks, too. The less central bankers involved the better. This needs to be wide open to the whole global system, inside and outside the US physical boundary.
The Fed should be working with the Treasury to manufacture securities only with a determination this time. During GFC1, the two did work together on the Supplementary Financing Program (SFP) which did create T-bill-like securities. They’ve already done this before! Link
In respect of Friday's US Fed $500 billion 84 day RP operation, only $31.25 billion was bid and accepted. Much the same response witnessed for the two previous $500 billion 84 day offers, where a total of $95.40 billion was bid and accepted.
This is exactly the same indifferent dealer response witnessed at the RNBZ TAF auction, Friday.
Are dealers really short of liquidity or collateral to participate or both? Whatever, these "bazooka" liquidity windows are not facilitating resolution of either issue. Indiscriminately ramping up illiquid bank claims to central central bank balance sheet reserves needs to be reviewed to determine it's relevance.
You can feel the frustations bubble over all over the place. (From a comments section)
the only solution is to regulate capital flows that are unproductive, predatory and unsustainable.
Regulating unproductive capital flows is not difficult and can be applied with steadily increasing rigor so that all countries have time to adapt and adjust.
But this is not going to happen while the debate is controlled by a bunch of gibberish middle class folk who were programmed by our universities during the 1970s right through to today to repeat bone headed free capital flow mantras.
The Fed Can't Fix a Crisis That Justifies Its Very Existence"
The imagined majesty of QE had you imagining a robust market system with an effective backstop against the worst of disruptions, guided by the unseen royalty of Economics. Ask no questions about time or process, just believe. Pay no attention to the lack of attentiveness, a dearth of realistic answers, and the religious, cult-like devotion to the rules of practice and routine. Bask only in the glow of bond buying!
Or, as it will be, stock buying!
What there won’t be, what there already hasn’t been, is currency elasticity. Though it may be strange and unrecognizable as such, collateral is its own currency. And that’s just where the money problems begin.
In Japan, its central bank has conducted 10 major QE-type programs, 24 different variations by my count, and that tenth one is fast approaching its seventh birthday. This certainly counts as a parade, though one you would be unlucky enough to ever have experienced.
The same parade is coming here; has just about arrived. Seeking guidance from the wrong Bagehot work, monetary authorities don’t know what else to do. Since Greenspan, operating under delusion that they are some sort of bureaucratic monarchy. True to its type, they’ll dutifully follow procedures believing the substance of their business is never more than this form of it.
And don’t you dare question it!
These people don’t know what they’re talking about and their ideas would send us into economic oblivion. Same idea in EU about banning short selling. You do that and then you take out the buyers in the market and then there is no longer a market. The greatest danger now is a full shift to centralised control, price controls, etc, which will send us into a depression.
Completely agree. This is a real opportunity provided private shareholding is kept up to a level that ensures market and management disciplines. Banks are similar to power companies, Air Nz - the Govt has to sit behind them, they may as well ensure the taxpayer benefits as they do. They’ll never get Kiwibank up to adequate performance, precisely because they are wholly Govt owned.
Agreed but lets face it who is ther to protect the intersts of pensioners and youth. Printing only protects the interest of the banks, their profits profits, and the banks risk proxys, the specuvestors. Someone has to lead this agenda - who is the big question....
"Our OCR is in a much stronger place." There will be no "knee jerk response." A broken system Mr Orr.
The big 4 banks share price chart/ market cap
For those interested in spreading Covid around, please attend Barfoot auctions this week to maintain an economic system and our banks, based on selling houses to one another
https://www.barfoot.co.nz/auction-search?l=34%20Shortland%20St&s=24/03/…
Couldn't they just have cut the banks a cheque for a billion dollars each and told them to operate at zero margin for the rest of the year?
E: Or the next five years? $30bn is enough to write off all student debt one and a half times over. Was this really the best use of $30bn dollars?
Agree. The repo operations were already at unprecedented levels by the end of last year, anyone looking could see there was a massive issue brewing. The weak explanations from the talking heads never held water either.
For example:
https://www.cnbc.com/2019/10/22/fed-repo-worries-continue-over-the-effo…
"The Fed has said that large settlements of Treasury auctions were at the root of September’s disturbance — along with payment of corporate income taxes — that sapped money out of the system."
The clowns in charge of central banks have absolutely no grasp on what is actually going on in the economy and financial markets. If they don't know what the problems are, how can they be relied on to fix it and not make it worse?
It absolutely won't. In fact, it is likely to make things worse in the long term. But they don't care about the long term, they just want to make sure house prices stay up (because our entire economy is based on it). That means enabling lending to continue at continually lower and lower rates. It doesn't matter about the virus, this would have happened anyway. The virus just accelerated the program.
This will keep going on until someone is brave enough to stand up and say it ain't right. Printing 100% of GDP seems impossible right? America has already done it, so no it's not. Printing 200% of GDP? Yeah, why not. 2 weeks ago a 30b bond buying program would have been laughed at, now its probably seen as not enough.
Whoa calm down. The NZ 10 year government bond is trading at ~1.463% and has recently been as low as 0.867%. The recent uptick in yields has been attributed to excessively large unwinds of leveraged US Treasury futures versus US Treasury securities basis trades. Other than that the market driven downtrend in global sovereign yields has been relentless in recent years.
The Fed's Not Pegging Bond Yields, the Yields Have the Fed Pegged
Yes, except these are not normal times. At last reality, in the form of risk, is being priced in. After decades of stimulunacy, central banks have nothing left than take us all totally into the asylum of UBI and MMT ... this event changes the Western economy, and the replacement is not nice to think about, because it's not price discovery and free markets.
The last 10 years in NZ hasn't been very nice if you're a younger person in NZ with price discovery and free markets...your options were to be a slave to a landlord or take on a massive amount of debt to service a loan on a house that has a reasonable chance of falling in value by 50% based on historical housing bubbles. How has this been nice?
No. The problem is over the last decade there has been NO price discovery and NO free market.
None.
It has been a Soviet styled command economy with a small clique of bureaucrats determining the cost of money and the value of every financial asset, including property: the result is the same sort of collapse that the Soviets suffered.
Yeah, you have this around the wrong way. True price discovery in housing would have meant valuations have been more sensible. However the money printing and lower rates frenzy from central banks (who are intervening in the price of assets) has caused a huge distortion in true price discovery.
Rubbish, IO!
There is no chance of housing prices dropping by 50%!
If they did landlords rental returns would double, as rents won’t be dropping!
We currently average 10% on average on purchase price so anything above that would be fantastic!
You can guess what you want but the reality is that it is not the housing that is the problem, it is the fact that anyone involved in equities is going to have their lifestyle majorly affected unfortunately!
Guarantee none of us posting to this forum - I'm 55 years old - has seen any event like this will be.
Property prices can bust. Central banks always loosening, never normalising, not really, for 80 years, but on stimulunatic steroids since the GFC, filling the world with debt at levels economies have never had to cope with, and keeping zombie firm after zombie firm alive, have created the perfect systemic storm, and this pandemic is the perfect storm trigger.
No one can say what is going to happen from this point: that's the scary part. I can quite easily see central banks losing control of this when it becomes about psychology.
Oh you've got to be (expletive) kidding me. It's like these idiots can't wait to try the shiny new thing their peers have been using overseas, despite the bubbles and perverse incentives these tools create. Give it up already - you can't control the market and this mess (asset bubble) needs to unwind. We're making a bigger mess for ourselves down the road.
Edit: Debt is borrowing from our future, i.e. the next generation, who are already getting pillaged by ridiculous house prices. This announcement has ruined my Monday (and some), cheers Reserve Bank.
History made, RBNZ a Zerohedge article.
https://www.zerohedge.com/markets/kiwi-qe-new-zealand-launches-emergenc…
DD
Orr is certainly more competent than the panicking apocalyptic and "I know better" commentators on this site.
Shore Thing and Jimmy James your comments suggest that slagging off would seem to be your level of competence and superseded only by a misguided perception of egotistical ability. Pathetic comments.
Adrian is a super smart and incredibly personable guy... but its hard to find anyone who would agree the 50bps cut last year was warranted or indeed productive.... it sent business confidence packing as 50bps has only ever been done in the past for emergency reasons.
His statement on Thursday was also woefully inept. In the face of significant supportive comments and stimulus from other central banks he produced "we are watching, nothing unanticipated" and his colleague Hawkesby reminded us to wash our hands.
NZ monetary policy is not normally the topic of US dealing rooms but I am told it was Thursday evening as the NZD traded incredibly expensively.
Does that assessment of his recent performance meet your criteria of an acceptable comment?
Nothing is going to prevent the housing bubble to burst - not this time, written in 1992
Nothing is going to prevent the housing bubble to burst - not this time, written in 2001
Nothing is going to prevent the housing bubble to burst - not this time, written in 2008
Nothing is going to prevent the housing bubble to burst - not this time, written in 2017
ANZ's share price continues to deflate -which should alert depositors to it's increasing credit risk compared to the so called risk free rate. Depositors need higher interest rates to compensate for this greater risk.
Notably, US equity futures open locked limit down.
Yvil: you didn't go back far enough. There was a housing bubble burst in 1979. I forget why. Perhaps the mid-70s oil shock.
But it was real because I lost big on a home unit development with my old man. We had 3 home units built and couldn't sell them for the price projected at the start of the development. The local ANZ manager gave us the hard word, and we had to let them go under cost.
The moral of the story Yvil is to broaden your data base. For an apt analogy look no further than the current plague; to get a precedent you have to go back further than 1992......you would have to go back to 1918, the year of the 1918 Flu epidemic.
Have a good day.
My God, in among it all – the RBNZ are still banging on with their mindless inflation targeting obsession of between 1% and 3%.
Their continual nonsensical lowering of interest rates and resulting unsustainable asset price booms is a main contributor to what lies under the hood of this financial shambles.
And now the end game - QE – a complete admission of failure.
A bit of honesty and not really the tool to be using now?
Inflation — a thief in your wallet
https://www.rbnz.govt.nz/research-and-publications/videos/inflation-a-t…
You won't hear it and you won't see it.
Owners will be trapped in situ; vendors will refuse to lower their price expectations and buyer will have less and less to pay to satisfy their demand.
The gulf between market participants will widen; the velocity of the market will die and only those properties that leak out onto the Distressed Sales market will show us all, quietly, how far 'values' have fallen.
I somewhat agree with this sentiment
the NZ housing market is very slow to respond to change, taking 6 to 12 months to make any meaningful moves normally because such a large number of mortgage commitments are over 12 to 36 month terms.
The smaller fry will be baked first i think, the investor/traders who use short term funds and will need to exit quickly to resolve financial pinch points when rents dry up.
Then the banks will be next enforcing mortgagee sales (after much hand wringing and self flagellation and blaming "circumstances") because they will need to protect their investors pockets.
“Fail. Just let it fail.”
You say that as if we actually still have an option – it’s already failed – just a desperate attempt at last minute fiddling going on now, boxed in monetary authorities trying to give the impression they have it under control.
One would think that once this all blows over, an opportunity may present itself to create a new, inherently more stable and balanced financial system.
Suggested starting point, rip up the old play back and toss it in the bin.
Is hyperinflation a risk here? Partner and I have been trying to buy our first house in AK for a while but kept failing at auctions. Have a decent-sized deposit saved up sitting in the bank, starting to get very worried about losing it. P.S. long-time lurker, have found the articles and comments incredibly valuable, thanks everyone.
You ask a very valid question Chameleon, if you have an asset, where is the safest place to put it in these very uncertain times?
- Do you deposit $500k into the bank?
- Do you buy shares with your $500k?
- Do you buy a house with your $500k?
- Do you start a business with your $500k?
Split it up, buy some gold, buy some NZ energy company shares, keep some in the bank, take some cash out now (as in physical currency under the bed, not much, a few thousand will do). At least one will keep returning some investment - power company shares and possibly gold.
Be very, very worried about the OBR being triggered. If that happens, probably 80% your deposit disappears in a flash. There is no deposit insurance, the RB is showing very clearly depositors WILL be thrown under the bus if banks fail and that only requires a reasonably small decrease in house prices of 20%. Queenstown house prices are about to drop like a stone, it's likely other parts of the country will follow and it has the real potential to take banks down with them. RB is purchasing "mortgage backed securities", so is currently bailing out the banks to the tune of billions of dollars. This could severely hurt our governments books if it holds all the worthless mortgages.
I thought RBNZ stress tested at 40% drop ? If really concerned about capital maybe low return govt bonds. Or just keep looking for your home and try to get a good deal (assuming you're jobs are secure eg healthcare). Doubt even current events will make AKL easy though so good luck and good buying. This is a health crisis being turned into an economic one. Still think it will pass but the damage is severe already. But I do have own property. And live in a country with abundant food and toilet paper.
They probably didn't forecast that the whole country would shutdown, that airlines would fail, that there would be zero immigration, that there would be no tourism sector for months. What's happened must have a reasonably extreme level of probability if running models I would image.
The safest investment is a positively geared rental property that is easily rented.
Houses are as safe as houses as they say!
Buy a house In ChCh for around the 400k and it will return you around 450 rent per week currently so your return is around 5% after all costs with interest rates around 3% you are well covered!
Long time investors are of course getting far better than this but sure makes a heck of a lot more sense than gambling on equities!
Predictable, that what I've stated on this website, firstly; the team follow my suggestion to do shock & awe as compare to US & OZ, boom 75 basis point down, then this QE, before the final one of OBR?.. this next May the OCR will be reduced again either by 15 or 10points, I think they'll opt for 15, personally I highly recommended 25 basis down, as more and more debt to be borrowed then channeled to the personal/individual loan servicing to the bank. The LVR will be relaxed, CGT off the table and foreseeable future. So before the final OBR folks! get those RE, while you can, lowest bank interest, deposit guarantee on April, As we can all observed, every levers on the govt micro & macro economic management were all geared up towards that.. 'maintaining the current flight gliding altitude.. At Any Cost' - Property & RE is being made a secure bet by any NZ officials for country future growth, the foundation has been laid solidly - If you delay to hit the buy now auction today? means you'll see it being re-advertised by different owner the next month with more price on it, Don't miss this once in a life time opportunity! - Even banks collectively agreed on their social consciousness, they shall bring longer period of mortgage holiday guaranteed soon.. funded by their years of profit making. Hit That Button! - for your own future wealth creation join the band wagon, As You all shall notice.. every components I mentioned above come to fruition slowly but surely! - WARNING: You Have Been Encouraged fairly.
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