What is happening with interest rates and inflation?
Mar 22, 2016
The title of the latest ASB Economic Update was “Wheel-spinning Reserve Bank needs more traction” It predicted that they now expected the RBNZ to lower the OCR to 1.75% to gain traction. It tipped that we would most likely need two more OCR cuts at the June and August Monetary policy Statements to get there.
The reason for this is that it appears we are not getting the inflation boosting traction from the recent OCR cut and this is primarily due to the increase in bank funding risk premia which have dampened the OCR impact and the NZ dollar has remained stubbornly resilient. The Reserve bank apparently did not anticipate three of the four major banks only passing on 10 basis points of the 25 basis points cut.
What is the implication of lower interest rates on the commercial property markets?
Interest rate returns on money in the bank are at all time low and the City and Fringe Team have anecdotally noticed an increased urgency in purchasers wanting to secure commercial property. Whether it be via individual property ownership or syndications, demand and motivation is very high and as a consequence we are seeing a further firming of yields for quality assets. Purchasers are displaying a renewed decisiveness as they are determined to “not miss out”.
Market Commentary on 15/03/2016: Eden Terrace - Snapshot 2016