KEY POINTS:
The Reserve Bank and the Government have trumpeted the sharp drop in the official cash rate in the last six months as putting more cash in the pockets of consumers and businesses, but that hasn't happened much in the short term at least.
Retailers and car yards are
beginning to wonder if there has been any easing at all and if they will see any of it. They have a point for a couple of reasons.
First, New Zealand savers have actually been hurt by the 475 basis point drop in the official cash rate to 3.5 per cent much faster and much more than borrowers have benefited from the drop.
Most savers with bank and finance company term deposits are on terms of around six to 12 months. New Zealand households currently have around $95.7 billion in savings accounts with banks, finance companies and building societies, Reserve Bank figures show.
The average six-month term deposit rate offered by banks dropped 491 basis points to 3.53 per cent between July last year, when the OCR cuts started, and this week. People on fixed incomes who rely on the interest from these term deposits have seen big cuts in their incomes.
On the other side of the ledger, mortgage and credit card borrowers who pay interest on loans worth $174.5 billion have seen only relatively small cuts in mortgage and credit card rates.
All this means is that the cash going out of the savers' pockets is at least as much, if not more, than the cash going into borrowers' pockets.
Second, much of the extra cash that has gone into borrowers' pockets has not been spent in the usual ways. Retail sales are flat-to-falling, depending on the measure used. This is a major turnaround from 2006 and 2007 when retail sales were growing at around 6 per cent.
Car sales have slumped sharply. New and used car registrations fell 30 per cent and 41 per cent respectively in December from a year ago.
Consumers are also being much more careful this time with their extra money, tending to save it or repay debt. Despite the falling term deposit rates, savers put an extra $4.755 billion into bank savings accounts and finance company debentures in the December quarter.
New mortgage lending was very weak in the December quarter, at least partly because mortgage repayment activity was heavy.
Meanwhile, the drop in the New Zealand dollar is also not generating the same boost it might once have because demand for exports and US dollar prices have also dropped.
All this means that the boost from easier monetary policy and the lower New Zealand dollar is taking much longer to come through than people hoped and expected.
It will come through though and there is a risk it will come through with a thump.
We all just have to wait a little longer.
Bernard Hickey is the managing editor of www.interest.co.nz, a website for investors and borrowers wanting free and independent news and information about interest rates, banks, finance companies and the economy.
