What interesting times we live in. We have Chinese foreign buyers accused of destroying the Auckland housing market, Greece defaulting on its debt obligations and being kept in the Eurozone for now after accepting crippling austerity packages, the Chinese stock market tanking and needing Government intervention to protect against a firesale, and now the Global Dairy Auctions have tanked and NZ dairy farmer’s will have their incomes further reduced.
OCR to be cut heavily over the coming months
This is likely to mean the Official Cash Rate will drop further than expected. There was little reason to raise it to 3.50% other than Mr Wheeler thinking inflation might rise. He was wrong. The Reserve Bank of New Zealand have been in breach of the policy targets agreements for many years now as we are meant to have CPI inflation running between 1 – 3%. We are still below 1% at a scarcely material 0.4%.
After the Global Milk Powder Auctions here is what happened on the interest rate swap market today:
Where to from here?
We will we almost certainly see the OCR cut on Thursday 23 July 2015 from 3.25% down to 3.00%. Some economists are picking the OCR to be slashed down to a record low of 2.00% by the end of this year. That would deliver floating interest rates at or just below 5.00% per annum.
These are interesting times. The Reserve Bank of Australia is likely to cut their OCR from 2.00% further, with some picking down to 1.50%. These might seem low but Latvia is actually paying (this is not a typo) you to borrow money now, and ten year yield of Switzerland is a paltry 0.04%.
So we will see a lot more uncertainty particularly from China and debt laden southern European countries. There seems little point in fixing for a long term now, given interest rates seem to be heading lower.
