Kelly Eckhold: Westpac chief economist defends the bank hiking fixed rates

A signal from the Reserve Bank's led Westpac to hike rates - and one economist expects other banks could follow. 

Westpac lifted two five-year fixed rates by 30 basis points yesterday.

The bank's chief economist, Kelly Eckhold, says it seems the Reserve Bank's unlikely to cut the OCR again any time soon. 

"We kind of expected that they would cut the rate by 25 basis points, but we didn't expect them to call time on the easing cycle. It sort of scared the markets a little bit." 

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Episode Transcript

Speaker 1 (00:09):
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Speaker 2 (00:16):
Brian Bridge, You've got.

Speaker 3 (00:18):
To Wellington because there's reaction to west pank yesterday. At
Westpac Bank yesterday came out and lifted their two and
five year interest rates by thirty basis points. And if
you've got a mortgage, you'll be watching that closely. Nicola
Willison's shop around.

Speaker 4 (00:31):
Wes Pack made that choice, other banks have not. And look,
I really want to see New Zealanders seeing that they
have some power when it comes to where they take
their mortgage and don't just look at the headline rates.
Go and hold your bank's feet to the fire. See
if another bank will give you a better rate.

Speaker 3 (00:47):
Kelly, you're cold. Is west PAC's chief economist joining me tonight, Kelly,
good evening.

Speaker 2 (00:51):
Good evening.

Speaker 3 (00:51):
So is this is Westpac the first and the rest
will follow?

Speaker 2 (00:56):
Well, we're certainly the first. I assume that the rest
will follow because in the end everybody faces the same
increase in funding costs that's occurred in the last few weeks.

Speaker 3 (01:07):
What's driving that the swap rates? What's going on there?
Can you explain it to us.

Speaker 2 (01:12):
Yeah, well, the Reserve Bank was unexpectedly hawkish when they
did their monetary policy statement a few weeks ago. Now,
we kind of expected that they would cut the rate
by twenty five basis points, but we didn't expect them
to call time on the easing cycle. So as a result,
the combination of them basically saying that they saw a

(01:34):
high hurdle for further cuts and then after the market
interest rates started going up when they said that the
market reaction was in line with what they would have expected,
has sort of scared the markets a little bit, I suppose,
and had them thinking about, well, if they're not cutting,
maybe they'll be hiking at some stage. And as a result,
they've really brought forward when they think interest rates will

(01:55):
start to rise.

Speaker 3 (01:57):
The Zoot Bank governor Arna Brennen came out today and said, look,
don't read too much into this. You know, we were
all options are still on the table. Is the Marking
going to listen to that?

Speaker 2 (02:08):
Well? I think sometimes the markets do overreact a little
bit here, and I think that probably is what has
happened here. I mean, based off what the Reserve Bank said,
there's not really any good justification for why the two
year and the three year and the five year interst
rates should have gone up by well, it's almost sixty
basis points. Now that wasn't in the Reserve Bank's forecast.

(02:30):
But nevertheless, I think people in the markets got caught
surprised by that change in tone from the Reserve Bank
and they went positioned for it. So sometimes these markets
can overshoot.

Speaker 3 (02:42):
Kelly, appreciate that update. Thank you, Kelly, you're called from Westpac.
Just a note of clarification that he was speaking not
as a spokesperson for the bank obviously, but here airs
an economist for it.

Speaker 1 (02:52):
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