The Reserve Bank has used its latest monetary policy statement to send the banks a message about the interest rates they are offering depositors.
It said the monetary policy committee had noted a “more limited pass through of higher wholesale interest rates to term deposit rates”, which made funding cheaper for banks.
“A greater pass through to deposit rates would be more consistent with the desired stance and transmission of monetary policy.”
Infometrics principal economist Brad Olsen said it was fair criticism from the Reserve Bank.
“There hasn’t been quite as much of a lift in term deposits as wholesale interest rates have increased, but retail mortgage rates of course have moved up faster than term deposits.
Brad Olsen.
LDR
“Even some slim difference between passing on interest rate increases to retail mortgage rates versus term deposits can start to create some larger margins for banks – and what the Reserve Bank is saying here is that, if both retail mortgage rates and term deposits were seeing more equal pass-through, the signalling from interest rates would be more balanced.
“Higher mortgage rates and other lending rates suggest that everyone should spend and invest relatively less than they did before, and higher savings rates, like term deposits, also send a signal that you’ll get a bit more if you save rather than spend/invest.
‘That’s the transmission the Reserve Bank is talking about.”
The main banks have been approached for comment.
As interest rates have risen, term deposits rates have inched up. In October last year, the average two-year rate was just over 3.5 percent, and the average five-year rate was just under 4 percent. In July, those rates were at 4.17 percent and 4.66 percent, respectively.
Shorter terms have moved less. The six-month rate has not moved according to the Reserve Bank data, while the one-year rate has picked up from 3.5 percent to 3.8 percent.
ASB senior economist Chris Tennent-Brown earlier said official cash rate moves might be expected to increase short-term rates, but longer terms would be more affected by what was happening offshore.
Massey University banking expert Claire Matthews said it was a surprising comment from the Reserve Bank.
“The key findings from their own report into the response of deposit rates to OCR changes included that monetary policy changes do flow through substantially to deposit rates, and that while deposit rates are slower to adjust they eventually exceed mortgage rate pass-through.”
She said the Reserve Bank seemed focused on the unchanged six-month rate, but other data sources showed the rate had lifted.
“Reading the MPS report I note they are looking specifically at the six-month rate…Without doing detailed analysis, which would require substantial time, my would be that the RBNZ’s comment doesn’t really seem very fair.”
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