New Zealand's households plunged an extra $2 billion-plus into term deposits in July as they scrambled to take advantage of still high interest rates ahead of anticipated reductions.
The Reserve Bank set the scene for falls in retail interest rates on July 10 with its 'dovish pivot', while the banks were already moving to lower their rates before that time. However, the rate cuts increased as July wore on and into August and then, obviously with the RBNZ cutting the Official Cash Rate on August 14 this opened the floodgates.
According to RBNZ monthly data, households locked away an additional $2.149 billion in July, which is the biggest monthly increase since June 2023.
Clearly this was a move by depositors to take advantage of high interest rates while they lasted.
As of the end of July, depositors had $136.107 billion stashed away in TDs. That's a record high total and is up by over $17.5 billion (14.8%) in the past 12 months.
Previously, when interest rates were at historic lows, the household amounts being put into TDs had withered, hitting a low point of $80.67 billion in September 2021. Since then an additional $55.5 billion has been stashed into TDs - a 68.7% increase in the amount locked away.
It will be interesting to see what happens to the TD totals in come months as the returns on new deposits decline - and where will the money be redirected?
The $2 billion-plus extra put into TDs in July was part of a big month for household deposits generally. There was a $3.475 billion increase in the total amount in deposits, the biggest monthly increase since December 2021, and taking the overall tally to just under $250 billion.
The annual rate of increase in deposits rose to 6.5%, which was the highest annual rate since November 2022.
Household transaction accounts, which have generally seen declining deposits in recent times, saw an over $1 billion increase in July, the biggest increase since December 2021, and taking the overall total to $38.481 billion.
It would be surprising with how quickly deposit interest rates are now declining if the July figures don't prove to be the high water make for this cycle. But as mentioned above, it raises the obvious question of where money will be re-directed if its not going into bank deposits. We will be watching this space.
20 Comments
I used to point out that Kiwis are pretty un-sophisticated investors. I don't now. (Kiwis don't like people like me holding up mirrors for them to see themselves in.)
I also used to point out that money locked away unspent helps to reduce inflation ... while furthering the wealth divide. And when rates start to come down, because it is locked away, can actually delay an economic recovery. And when rates are very low, is more likely to be spent but is not necessarily inflationary if it gets spent on the right things (which it doesn't, see first paragraph).
Did I mention the RBNZ should have reduced the OCR back in Nov '23? Now the RBNZ has the problem that when these TD's mature, they'll have dropped the OCR to near stimulatory levels, and the maturing TD money won't be going back into TDs, but into stagnant assets like houses.
Bust. Boom. Bust. ... ... Here we go again. Worst. Central. Bank. Ever.
Taking money from a TD and putting into houses isn't putting money into a "stagnant asset". Assuming you mean putting money into renovations, that's real quality of life improvements for people, and income for tradies. If you mean new builds, that's building real wealth and easing the housing supply shortage. Neither of those is a "stagnant asset".
You're welcome to share your wisdom on the motivations and behaviors behind this Z. It's possible to draw a few inferences. 2/3 of bank account holders barely have two sticks to rub together and <10% have any substantial savings in cash (>$100K). So assuming that the 'high net worth in cash' segment is saving, not a particularly good sign that high-end consumption occasions are going to be common.
It will be interesting to see what happens to the TD totals in come months as the returns on new deposits decline - and where will the money be redirected?
In these increasingly uncertain times, if enough believe by holding off the big purchases, it will only be cheaper tomorrow, deposits might well continue to increase and not be redirected at all. When deposit funds are pouring into banks and not being on-lent, its not a healthy indicator with consumer confidence to buy with borrowed money either. Given time this will change and instead of increased job losses being reported, the opposite will occur and more prosperous times will slowly return.
Not necessarily.
Many 'cash funds' invest in bonds. As interest rates fall, those that purchased bonds previously, at higher interest rates, will be able to sell their bonds for more than they originally paid for them.
Shrewd bond buyers aren't there just for the interest - there's capital gains to be had in them too.
And let's not forget that many bonds are for longer periods than TDs, e.g. 10 years or more. And they just keep on paying out at the coupon rate while shorter term rates fall and bounce all the time.
Interesting tone of comments. Seems some are uncomfortable with those who have "money in the bank"
As a nation we have a debt culture. We have not worked out that the real benefit flows to the owner.
As for TDs, it means there are enough people who understand the benefits of being on the positive side. The benefits of having no debt. And TDs are one useful tool as part of that.
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