Katlyn Parker: Milford Asset Management Portfolio Manager on the market response to end-of-year OCR cut

The OCR was slashed by 50 basis points today - but some markets believe it could have gone lower.

Some experts believed a chunkier 75 point cut was on the way before the Reserve Bank took its summer break.

Milford Asset Management Portfolio Manager Katlyn Parker unpacked the response further.

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Episode Transcript

Speaker 1 (00:00):
Caitlyn Paker Molfedesset Management with me. Now, hey, Caitlin, Hi,
here are you. I'm very well, thank you. Now, there
was a little bit of flirtation from the market, wasn't
there as to the possibility of a seventy five basis
point cut? So when we got the fifty were they
disappointed today?

Speaker 2 (00:15):
Yeah, Look, it was very much consensus that we have
half percent, but they were toying with the idea that
we might get a bit of a chunkier point seven
five percent cut away before Christmas. But look, there wasn't
really much disappointment. I suppose what we did see was
a bit of volatility versus drastic end to day changes.
And there's a bit of time between when the Reserve
Bank released their statement to their forecast before we have

(00:37):
the PRESO, so the communication was a bit mixed initially.
And initially we actually saw a currency rally in the
view that the official cash right wasn't going to be
moving as low as initially taught looking at the forecast.
But then on the press conference with Governor Or he
gave very clear guidance that another half a percent cut
is very much their base case for February so we

(00:57):
saw a lot of this unwined as well. And then
in terms of interest rates, there was no massive move
in terms of official cash right track. They still see
the low at about three percent, but they did note
that there is a higher risk of inflation volatility towards
the end of next year. So we saw interest rates
move up. You know, the two year was up aboutero

(01:17):
point one percent at the end of the day, but
nothing drastic to call out, and nothing major to call
out either on the equity side. After today, it was
very much as expected.

Speaker 1 (01:25):
And let's seventy five basis point that that idea that
was basically there because the reserve banks having this mess
of three month break right.

Speaker 2 (01:31):
Yeah, they're definitely they're heading on their three month hiatus
as they do every year. So some of the thinking
behind it was, you know, why not get ahead of it.
A lot can happen in three months, and we are
seeing a bit of green shoots in the data out there,
but it's still very very soggy, and a lot can
happen in three months. Also offshore, we have an inauguration
in the US, but you know, regardless if they did

(01:52):
the point seventy five today instead of the half a percent,
we still have an official cash right that starts with
the four, so that's still considered to be very strict
of and the Reserve Bank they're not expecting to get
back to their the bounds of what they consider neutral,
so not you know, stimulating growth, but not neither restricting growth.
They're causing inflation until the end of twenty twenty five.

Speaker 1 (02:13):
And okay, so we've gone from five and a half
to four point twenty five. The average mortgage rate that
kiwis are paying is still close to six and a
half why Yeah, so that.

Speaker 2 (02:22):
Was highlighted today by Governor or So the effective interest
rate that's six and a half percent that kiwis are
paying right now, that's expected to drop to about five
point eight percent by their calculations over the next year,
which is still pretty high. And you know why is this?
It really comes down to the margin pressures that banks
are having on their funding costs. So they were benefiting
from that lower funding from the Funding for Lending program,

(02:45):
you know, cheap funding that the worbiens out we're able
to provide. That's now off the table, so the banks
are having to pay up for more expensive deposits, so
they're not rushing to cut their margins and Governor Or
he did note that he does expect on the flip
side that as we see some activity in the housing
market pickup, we should start to see some competitive pressures
come through. Because today there hasn't been much going on

(03:07):
in terms of lending for housing, so there hasn't been
anything to be too competitive about. So he is hopeful,
I suppose an optimistic that those margins will start to
come down a bit and relief will be felt for
mortgage owners.

Speaker 1 (03:18):
Kaitlyn, thanks for running us through that. Appreciate It's Kaitlyn
Park and milfed ESTC Management. For more from hither Duplessy
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