Having taking stock lately of the nature and type of feedback we receive on our blog, ratings and review pages it is pretty well balanced – both brickbats and bouquets. Although, as we have been dropping rates lately based upon movements in wholesale rates, quicker than our competitors, there is a larger number of negative comments coming through about that very fact.
For those of you who didn’t read it at the time, in a prior blog post I did give my view on what was happening and why.
What has caught my interest of late is the mortgage market, and even though we don’t play in that space it has given some more insight into what’s going on in retail banking (lending and deposits) and how different it is to the market of the past 5 years or more.
Up until the "credit crisis" NZer’s could pretty much track what would happen to mortgage rates based upon the RBNZ’s decisions re the Official Cash Rate (OCR). If the OCR went up, mortgage rates went and vice versa.
But that’s now changing …
If you read what some of the banks are saying, Kiwi’s should no longer expect this to happen.
It’s been well sign-posted that the RBNZ is expected to drop the OCR in September and again in October. However the banks have been saying that we should not expect to see mortgage rates come down.
As per my earlier blog post, wholesale funding costs to the bank’s are significantly higher than ever before, and because of that the banks are looking at all opportunities to maximise their income from all products e.g. mortgages, hence the likelihood that they’ll keep mortgage rates as high as they can simply to make as much margin as they can and in turn offset the high premiums for wholesale funding.
So what do I care, apart from the fact that I have a mortgage myself?
Well, I’m now wondering what’s going to happen with retail term deposit rates in NZ. As with mortgage rates, the banks are looking everywhere to make money to offset the wholesale funding costs so the logical place to look is what they pay customers for deposits. And we are starting to see it – most banks have been actively reducing their deposit rates, based upon activity in the wholesale markets and this is now starting to be seen in their on call rates also.
It really is an interesting time – and the question is how long will it last? Some commentators are saying at least to mid-2009 if not end of 2009.