Mortgage lending expert says OCR is unlikely to go into the negative

by Roxanne Libatique03 Sep 2019

With the record-low official cash rate (OCR), some economists are predicting that it will be cut even further – possibly even reaching the negative. However, a mortgage lending expert believes otherwise.

James Kellow, director of New Zealand Mortgages & Securities (NZMS), said that the OCR may have a few cuts to go but it’s unlikely to go below zero.

“New Zealand interest rates are converging on zero. It would take a massive economic upswing and rampant inflation to turn around their downward track, which is very unlikely in this environment. Instead New Zealand borrowers can expect the official cash rate to drop to around zero, with total interest rates sitting at about 3%,” Kellow said.

“The OCR has got a few more cuts to go, but I don’t think we’ll see it go into the negative. The Reserve Bank has got plenty of other tools to keep inflation within the 1% to 3% band.”

He added that it’s a good thing Reserve Bank governor Adrian Orr investigates all options and is not afraid to use unorthodox monetary levers if required.

Read more: “Nothing's too big to fail” – Reserve Bank governor

Kellow further commended Orr for standing up for middle New Zealand and fearlessly taking decisive action, laying down the law with lenders and advisers, as well as speaking directly to the government, business, and the public alike.

“He’s warning Kiwis facing low bank deposit rates against high-risk dud investments promising better returns. At the same time, he’s working closely with the Financial Markets Authority and Commerce Commission on cleaning up the lending sector’s conduct and culture. He’s also reinvigorated the Council of Financial Regulators,” Kellow said.

He added that if Reserve Bank’s move to require banks to hold more capital will not fully push through, then the mere fact that it’s another lever that may be pulled only improves the governor’s influence.

“Such decisive action is exactly what we’ve needed from the Reserve Bank for a long time. You’d think now making monetary policy decisions by committee would be worse, but it’s actually proving to be a lot more effective, delivering some very deliberate moves,” he concluded.

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