The coronavirus outbreak has been the main driver behind the decision
The Reserve Bank of New Zealand has slashed the Official Cash Rate (OCR) by 0.75%, bringing it to a new historic low of 0.25%.
The Reserve Bank says the OCR will remain at this level for at least the next twelve months, citing the “negative economic implications” of COVID-19 as the primary driver behind the decision. There will be no further OCR review on March 25, as originally planned.
“The negative impact [of COVID-19] on the New Zealand economy is, and will continue to be, significant,” the Reserve Bank stated.
“Several factors will continue to assist and support economic activity in New Zealand.
“New Zealand’s financial system remains sound and our major financial institutions are well capitalised and liquid. The Reserve Bank is also ensuring that the banking system continues to function normally.”
The Reserve Bank noted that global trade, travel and business and consumer spending have fallen significantly, and movement of people across borders has also slowed. It says that further action will likely be through a programme of Large Scale Asset Purchase of government bonds, rather than more OCR reductions.
Many of the main banks have since responded to the cut by reducing their home loan rates.
Kiwibank has reduced its floating home loan rate from 5.15% to 4.40%, with CEO Steve Jurkovich saying that its commitment is “to support our customers and the wider New Zealand economy as the Coronavirus (COVID-19) situation evolves.” Kiwibank is also offering a relief package to customers financially affected by the outbreak.
Westpac NZ has confirmed a 75bps reduction to its Choices Floating and Choices Offset Floating interest rates, which are now 4.59%. Its fixed rates are under review.
ANZ has cut its floating home loan rate from 5.19% to 4.44%, and its Flexi rate has dropped from 5.30% to 4.55%.
“While the OCR is only one factor in determining interest rates, we recognise the latest cut is in response to extraordinary economic conditions due in part to the impacts of coronavirus,” ANZ managing director retail and business banking Ben Kelleher said.
“The current extreme low interest rate environment provides an opportunity for home loan customers to save and repay home loan debt.”
Kelleher says ANZ is still concerned about the effects of low interest rates on savers, and is “cautiously reviewing” deposit rates.
