Hawkesby said it typically took 12 to 18 months for OCR changes to fully take effect.
Economic activity changes within the first three to six months of an adjustment. Then it takes a bit longer for this to affect inflation.
With inflation trending back towards the RBNZ’s 1-3% target range, the central bank is comfortable easing very tight monetary conditions, bringing them back to a more neutral level that’s neither contractionary nor expansionary.
RBNZ data shows that in June last year, 28% of the country’s mortgage debt was due to be repriced within the following six months, and 52% within the following year.
By June this year, these portions rose to 38% and 64% respectively.
“It’s quite a tilt,” Hawkesby said.
“It gives us confidence that as we shift our stance, it will feed through [the economy].”
Another set of RBNZ data tells the same story.
Of all the new household and investor mortgage debt taken out in June this year, 16% was fixed for six months.
This suggests a decent portion of borrowers betted on rates being low enough six months down the track to make up for the premium they paid for fixing their mortgage at short terms.
Fixing for a year continued to be the most popular option for new borrowers in June, with 38% of new mortgage debt fixed for this duration.
Some new borrowers appear to have acted on the RBNZ’s late-May OCR outlook, which suggested it would likely hike the OCR once more before cutting it in August next year.
The portion of mortgage debt fixed for six months fell by 2 percentage points in June, compared with in May, while the portion of debt fixed for 18 months and a year each rose by 1 percentage point.
What about savers?
Savers haven’t changed their behaviour as much as borrowers over the past year.
By the end of June, more than half (53%) of all bank deposits (by value) were in on-call accounts.
A further 32% were due to be repriced within the next six months, and 12% between six months and a year.
A very small portion of deposits were fixed for longer stretches, suggesting interest rate cuts will filter through this channel relatively quickly too.
The Herald last month asked ANZ if it had noticed a rush among its customers to lock in relatively high term deposit rates, with interest rate cuts on the horizon. ANZ said no.
Hawkesby wasn’t particularly concerned about borrowers’ and savers’ responsiveness to OCR cuts causing inflation to get back out of its box.
Looking ahead, he believed the risks around the assumptions underpinning the RBNZ’s latest forecasts were “balanced”.
RBNZ governor Adrian Orr noted, in a press conference, that the bank was in a strong position to move forward “calmly” with OCR cuts.
He noted wholesale interest rates had fallen in recent months, as traders had been betting on the OCR falling sooner rather than later.
Orr said the bank would take a “measured approach” to easing monetary policy conditions.
But can we trust this view, given the extent to which the RBNZ changed tack between May and August?
“There is a tendency for people to fixate on the central projection that we publish,” Hawkesby said.
“We always talk about how there is a wide range of uncertainty around that. The record of the meeting is a really great capture of that uncertainty.”
Jenee Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary Press Gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
