Meanwhile, the uncertain economic environment has prompted people to put their money in the bank, without needing to be enticed by attractive interest rates.
The Reserve Bank noted the dynamic when it reviewed the OCR in September.
It mentioned it again when it reviewed the OCR on Wednesday, noting that people were saving more than usual.
Nonetheless, the Reserve Bank declined to acknowledge that its decision to keep the OCR on hold, rather than lift it as was widely expected, could further suppress deposit rate rises in the near term.
Indeed, its call saw wholesale interest rates fall particularly dramatically at the short end of the curve.
Wedge founder Dave McLeish explained this could keep shorter-term deposit rates, which are heavily influenced by the OCR, from rising.
Longer-term rates are influenced by international factors, like concerns about high oil prices causing widespread inflation and governments’ indebtedness driving bond yields higher.
Indeed, longer-term deposit rates have risen by more since the trough in this interest rate cycle than shorter-term rates.
The average rate on offer for a new three-year bank deposit was 4.49% in September. This was 80 basis points (bps) more than what was offered in November.
Meanwhile, average rates on new six-month and one-year deposits were 3.59% and 4.02%, respectively. These were 3 and 54bps higher than those offered in November.
Similar story for mortgage rates
As for borrowers, in September, the average new standard one-year mortgage rate was 5.55% – 45bps above what was offered in November.
Meanwhile, the average new two-year rate was 5.86% – 58bps above the November average.
Once again, McLeish saw the Reserve Bank’s dovish OCR decision keeping shorter-term mortgage rates at bay for now.
He believed banks could even try to capture some market share by lowering the odd special mortgage rate.
JB Drax Honore chief strategist for Asia Pacific Sean Keane similarly recognised the downward pressure the Reserve Bank’s decision put on some mortgage and term deposit rates.
He believed wholesale interest rates would need to keep falling to push banks to make widespread cuts to their rates.
Furthermore, he couldn’t see them making major changes ahead of the November 7 election, given the impact the result could have on financial markets.
OCR could rise by more than previously suggested
Reserve Bank Governor Anna Breman declined to comment on how the bank’s shock decision would impact retail rates in the near term, when asked by the Herald in a press conference, noting these were influenced by a range of factors.
She did, however, note the Reserve Bank would “likely” continue hiking the OCR to get it to a neutral level that meant it was no longer stimulatory.
Breman went even further by suggesting more OCR hikes could be required than the Reserve Bank pencilled in when it last published an OCR outlook in September. At the time, it saw the OCR getting to around 3.25%.
This was a risk identified by the three Monetary Policy Committee members who wanted to lift the OCR on Wednesday.
These members – Reserve Bank chief economist Paul Conway, assistant governor Karen Silk and external member Hayley Gourley – believed the economy had been resilient, and lifting the OCR now guarded against inflation bedding in and more aggressive OCR hikes being required.
Conversely, Breman, Rebecca Williams – the Reserve Bank’s senior manager of economics, who has just joined the committee and reports to Conway – and external members Prasanna Gai and Carl Hansen voted to keep the OCR on hold.
They noted higher fuel prices hadn’t caused as much widespread inflation as expected.
They put weight on the fact that households were keeping their wallets shut. This was impeding businesses’ abilities to pass on higher costs and employees’ abilities to bid for higher wages.
Breman and Gai also “attached material risk to the possibility that the global environment could shift abruptly”.
All members agreed on the overall outlook for inflation. But they placed differing weights on various risks and the timing of the monetary policy response.
The committee will review the OCR again on December 9.
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.
Stay ahead with the latest market moves, corporate updates, and economic insights by subscribing to our Business newsletter – your essential weekly round-up of all the business news you need.