WestpacTrust is the first of the five major home lenders to raise its floating rate in the wake of last week’s move by the Reserve Bank to raise its official cash rate (OCR), even though pricing in the wholesale market suggests such a move isn’t warranted.
Wholesale financial markets were little changed after the Reserve Bank raised the OCR from 5.5% to 5.75%, with 90-day bank bills trading at 6%.
The usual margin on floating rates is accepted as between 150 and 200 basis points above the 90-day bank bill rate, which puts WestpacTrust’s floating rate at the extreme upper limit.
Kiwibank chief executive Sam Knowles has said the New Zealand banks' traditional floating rate margin is excessive and that in other countries housing lenders manage to operate on margins of about 100 basis points. (Kiwibank’s floating rate is currently 7.1%).
WestpacTrust head of priority markets David Cunningham agrees the bank is now charging at the top of the accepted margin range, but says that’s not likely to last long.
"At other times, it’s near the bottom of the range. I wouldn’t expect that margin to go any wider," Cunningham says.
Within two weeks, the bank’s margin is likely to be down to 190 basis points or less, he says. The moving average of the 90-day bank bill rate is still increasing, he says. "We’re certainly not at a point where the (rising) cycle’s at an end."
Even though the central bank has moderated its rhetoric, the expectation is that the OCR will continue to rise this year.
WestpacTrust’s chief economist Adrian Orr is still forecasting two further 25 basis point increases in the OCR this year.
