Wholesale interest rates rise after OCR decision

Two year, five year, and ten year swap rates rose on Wednesday after the RBNZ decided against another rate cut.

After the Reserve Bank's 50 basis point OCR cut in August, financial markets had priced in a strong possibility of another reduction.

The jump in wholesale rates after the surprise decision makes an increase in mortgage rates more likely.

At a press conference on Thursday, Reserve Bank governor Adrian Orr was asked whether he was concerned the OCR decision would lead to an increase in mortgage rates.

Orr said: "That is going to be for the retail banks themselves to decide. There's plenty of margin involved in lots of business competitive decisions. One, how the official cash rate feeds through into market expectations and forward pricing, and two how pricing feeds into a competitive banking sector, and what they do with mortgage rates."

"We believe monetary policy is stimulatory, and that we have to keep it at that position for a prolonged period of time, and if circumstances change, we will act. Banks will have to make commercial business decisions around what they want to do with their customers."

Markets are pricing a 20% chance of another OCR cut in February, and a 50% chance of a cut by November 2020.