By Roger J Kerr The RBNZ are "disappointed" that the banks have not passed through to customers the recent reductions in official interest rates. The RBNZ also considers that they still have "leverage" over the behaviour of investors/borrowers in the economy with interest rate changes. These comments suggest that the chaps and chapesses at the Reserve Bank are more out of touch with the banking and interest rate market than we previously thought. As commented on last week, the banks' costs of funds have not reduced very much at all due to the reduction in the OCR to 2.5%. The market reality is that retail and wholesale depositors into banks are not accepting interest rates much below 4.00% and the banks are prepared to pay up to get the cash in the door. Monetary policy has lost its potency and effectiveness and the Governor and his deputies have to recognise this reality.
Most of the volatility in swap interest rate markets over the past three months has been caused by changeable RBNZ statements on the economy and interest rate levels. The best monetary policy stance the RBNZ can take now is to do and say nothing i.e. let the market rule. The 11 June Monetary Policy Statement will be the next major date for the RBNZ view on the economy. Hopefully by then they will have a better understanding of where borrowers and investors are actually meeting and transacting on the price of money in New Zealand today. "”"”"”"”"”- * Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com
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