Nick Tuffley: ASB Chief Economist on why your interest rates aren't coming down

Last weeks OCR cut brought hope of lower interest rates but the wholesale market seems to have been spooked by the Reserve Bank ruling out further cuts. 

The term wholesale interest rates have jumped in response.

ASB Chief Economist told Heather du Plessis-Allan, "we certainly put the the cost of wholesale borrowing up a bit higher as a result of this."

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Episode Transcript

Speaker 1 (00:00):
Heather Duplicy Allen, if you're wasted the major banks to
cut their fixed mortgage rates after the OCR was dropped
last week, you might be out of luck. It looks
like the wholesale market has been surprised by the Reserve
Bank firmly ruling out any further cuts, and that's led
to a jump in wholesale interest rates. Nick Tuffley is
the ASB Chief Economist and with.

Speaker 2 (00:17):
Us Hello, Nick, good afternoon.

Speaker 3 (00:19):
How much of the wholesale rates up by that does.

Speaker 2 (00:23):
Vary by the term, but if you're looking at compared
to right before the NPS, you're probably anywhere between say
fifteen and thirty basis points, and you're up more than
that from the lows that we got to sort of
later in October.

Speaker 1 (00:35):
Okay, so what brought this on?

Speaker 2 (00:37):
Well, you had the markets before the Montreal policy statement
still in effect building into wholesale rates that there was
probably about a fifty to fifty chance of a further
interest rate cut, and the Reserve Bank, I guess you
could say they left the door slightly jar to cutting
further if the economy doesn't pick up like it was,
like it's generally expected to. But they were making some

(01:00):
pretty clear noises that they think they're pretty much done,
and so that markets have shifted to pricing in a
much greater chance of the official cash rate going up
is the next move rather than down?

Speaker 3 (01:12):
Was this clumsy from the Reserve Bank?

Speaker 2 (01:15):
Well? I think I would say it's inconvenient from the
point of view that we know that there are a
number of people who will be fixing their mortgage rates
and you run the risk of we certainly put the
cost of wholesale borrowing up a bit higher as a
result of this. But the challenges lot if you've got
markets pricing in a cut and you get to a

(01:37):
point where that's no longer likely to happen, you are
going to get a market reaction at some point. It
just feels like we're seeing quite a market lift and
rates in every short period of.

Speaker 1 (01:45):
Time, right, So what do you reckon?

Speaker 2 (01:46):
Nick?

Speaker 3 (01:46):
Is it up from here?

Speaker 2 (01:49):
From the Reserve Bank's view, look, i think we're on hold.
From here is the most likely outcome. I mean, that
was what we were thinking before this statement.

Speaker 3 (01:57):
We were just What I was meaning is if you'll
think I'm just going to wait for those fixed rates
to come back a little bit, you probably have to
factor in that they're going to go up now right.

Speaker 2 (02:06):
Well, from here, I think that's the more more likely
way you're going to be I'll put it this way,
is that the drivers to push rates down further. You know,
you are looking for something to happen overseas it's not
good news, or something domestically that's not good news to
sort of really be a key catalyst for there. So
look at it is that time for people to start
looking and going Okay, look, I've been waiting for the

(02:28):
Reserve Bank to get to the bottom. Maybe we're there,
you know what it is this the time to start
looking at what's the right thing to do?

Speaker 3 (02:34):
Yeah, Nick, thank you very much for you to im appreciated.
Nick Toughly, a'sbchief Economist.

Speaker 2 (02:38):
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