The RBNZ’s commentary suggested it was becoming more confident it was winning its fight against high inflation. Indeed, on August 14 it made the first of what’s expected to be a series of cuts to the OCR.
Over the past two and a bit years, households have been moving their money from transaction accounts to term deposits to capitalise on high interest rates.
In July, 55% of all household bank deposits were in term deposits – a portion in line with pre-Covid levels and up from the 38% low it fell to in late 2021 when interest rates were very low.
So, while households put more money in term deposits in July than they did in any of the prior 10 months, the increase was consistent with the trend.
The anomaly in July, however, was that the increase in term deposits didn’t come at the expense of transaction and savings account balances. Households grew these balances too.
The value of all their bank deposits grew by a whopping $3.5b, or 1.4%, the largest monthly increase in two and a half years.
While it’s safe to assume the growth in term deposits was the result of the RBNZ signalling rate cuts could be around the corner, it’s harder to pinpoint what was behind the big jump in transaction balances.
Westpac’s former treasurer Jim Reardon, now a consultant, believed people would have shifted their money out of bonds and into term deposits.
With bond yields falling faster than term deposit rates, he noted term deposits might have been a more attractive option for those looking to invest in a relatively safe asset class in July.
With a few big tranches of bank bonds maturing in July, he believed there would’ve been a bit of money floating around looking for a home.
Term deposit rates near the 6% mark would’ve been more attractive than bond yields around the 4.5% mark.
Accordingly, Reardon wondered why banks hadn’t cut their term deposit rates by more as yet.
David Cunningham ,Squirrel Mortgages chief executive and formerly of the Co-operative Bank, cautioned the data could fluctuate a little month-to-month if, for example, three pay cycles rather than the usual two were captured in a month.
It’s unlikely the jump in total household deposits can be put down to tax or welfare changes.
Adjustments to income tax brackets only took effect on July 31, so will likely be captured in the August figures.
Meanwhile, both the minimum wage and welfare rates are adjusted in April.
CoreLogic NZ chief property economist Kelvin Davidson said there wasn’t evidence of people selling out of property in July, either.
ANZ chief economist Sharon Zollner said people may simply have spent less in July, due to nervousness about their job security and all the bad headlines about the state of the economy.
She believed there was quite a bit of uncertainty around how people would respond to lower interest rates, given the economy will be coming out of a RBNZ-engineered recession.
Zollner wondered how much of the economic slowdown has been optional rather than forced upon people.
Although unemployment is rising, it is still relatively low. And while mortgage rates are well up, they only directly affect those with debt.
Accordingly, she said there could be a decent group of households and businesses waiting for a signal that confidence is returning, before they start spending and investing more again.
Jenée 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.
