The RBNZ appears sceptical about the extent of ‘green shoots' in the global economy, and they are ready to cut rates further if conditions deteriorate again. But the recent improvement in housing activity, net migration, business confidence and global market sentiment seems to reduce the immediate need for another rate cut.
We now expect a pause at the 11 June Monetary Policy Statement, with any further cuts delayed until September and beyond, once the extent of the slowdown in our major trading partners (particularly Australia) becomes clearer.
The message will still be that the OCR is likely to be at or below current levels for an extended period -
while the RBNZ has urged banks to lower their lending rates, we think the more pressing concern for them is to encourage borrowers to take up the low short-term rates that are already on offer, rather than locking in for longer terms at substantially higher rates.
Fixed vs. floating
We emphasise that there is no urgency to fix for longer terms at the moment. Short-term rates are significantly lower than long-term rates and the RBNZ has signalled that they will remain so for some time. Consequently, the trade-off between fixed and floating rates is likely to be much the same in three or six months' time as it is today.
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