Banks slash floating rates after 50bp OCR cut

ASB was the first of the major banks to react, immediately dropping its floating home loan rate by 50 points to 7.89%, while BNZ soon cut its variable rate by 50 points to 7.94%.

The Real Estate Institute was also quick to react, saying that the OCR cut “will not only bring relief for borrowers but also reinforce the optimism in market sentiment” that has shown up recently in increasing activity, especially at open homes.

Economists had predicted a 50 point OCR cut and markets had already priced in a cut of that magnitude ahead of the statement.

In the first few minutes after the announcement, the New Zealand dollar fell as low as 60.98 US cents compared with 61.35c immediately before while two-year swap rates fell seven points to 3.64%.

The central bank was non-committal about what its next move might be, with the notes from the monetary policy committee saying that “future changes to the OCR would depend on its evolving assessment of the economy.”

The minutes showed that the committee had discussed the merits of both a 25 point and a 50 point cut before opting for the larger cut and noted that “current short-term market pricing is consistent with this decision.”

Many economists are arguing that the economy is so much on its knees that a further 50 point cut on Nov 27, when RBNZ publishes its next monetary policy statement, is warranted, especially since RBNZ will then take its traditional Christmas break until its first MPS of 2025 which is due on Feb 19.

Currency strategist at Westpac, Imre Speizer, says the minutes indicate that there's more easing to come because the committee agreed that an OCR of 4.75% “is still restrictive.”

“They pretty clearly said there's more easing to come,” Speizer says.

Unlike the US Federal Reserve, which warned markets on Sept 24 when it cut its key rate by 50 points that they should not to expect another jumbo cut, the RBNZ made no reference to a 50 point cut being exceptionally large.

Traditionally, central banks move their key rates at a 25 point pace.

Whether RBNZ's confidence in the inflation rate returing to its 2% target will be revealled in a week's time when the September quarter consumers price index data will be released. The CPI stood at 3.3% in the year ended June.