OCR moves to 3.5%

July 25th, 2014 at 10:00 am by David Farrar

OCR

The good news for home owners with a mortgage, or aspiring ones, is that the indications are that there will be no further rises for this year, at least.

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31 Responses to “OCR moves to 3.5%”

  1. Redbaiter (9,098 comments) says:

    “The good news for home owners with a mortgage, or aspiring ones, is that the indications are that there will be no further OCR rises for this year, at least.”

    How about more blogging and less spinning?

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  2. Yogibear (366 comments) says:

    Put the house on it, literally.

    It seems Wheeler doesn’t roll over in bed without having signalled it 3 months in advance. And then having made the decision to roll over, won’t roll back again without having sent a clear message to his wife and the family cat earlier that evening on what his intentions were.

    Now if only he’d exempt spec houses from the LVR restrictions rather than just respond to the franchise builder lobby group and only exempt contracted new builds.

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  3. oldpark (338 comments) says:

    Seems RBNZ have been jumping at shadows.Even worse everytime they increase the OCR all banks in NZ increase their balance sheet,with RBNZ assisted windfalls.

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  4. SPC (5,641 comments) says:

    Now that the OCR is now once again moving some distance ahead of trading partners, the call of Bollard to give the RB Governor another tool to use rather than just upward OCR movements becomes relevant once again.

    The option to apply 4 .25% increases to a 1% surcharge on mortgages rather than 4 .25% increases in the OCR (3.5 to 4.5%) should be given to the RB Governor.

    Once at a 1% surcharge about $2Bpa would be raised by the surcharge.

    There are other revenue advantages – a lower dollar means more taxable export revenue and higher GST revenues (one government revenue disadvantage from a rising dollar is falling GST revenues as imports fall in value).

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  5. Yogibear (366 comments) says:

    Red. No spin from DPF here.

    Central bankers as a group tend to value predictability over agility, and Wheeler has shown he is at the extreme end of that scale.

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  6. anonymouse (717 comments) says:

    @SPC (one government revenue disadvantage from a rising dollar is falling GST revenues as imports fall in value).

    That assumes that there is no demand elasticity in spending, when in fact there is,
    While a rising dollar lower values and hence GST, the lower price also promotes more consumption that overcomes the fall in value due to the higher dollar.

    Consumers have descritionary spending, and when prices on many things fall, they spend, so actually in times of a rsing dollar GST income actually rises as consumers spend more,
    Also businesses tend to repalce plant and equipment during periods of a high NZ dollar, again increasing GST spending..

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  7. EAD (1,128 comments) says:

    What a fcuked up monetary system our central banks have created with their fiat. Looking at that chart, interest rates were higher when the country had less debt. Now that we’re up to our eyeballs in the stuff, interest rates are bizarrely lower? Here was me thinking interest rates should reflect risk and the time value of money. Obviously not in our Brave New World.

    http://www.zerohedge.com/news/2012-11-25/artificial-interest-rates-and-forfeiture-growth-dividends

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  8. ROJ (121 comments) says:

    We don’t see deposit rates rising yet (or in the recent past, even being advertised or commented on).

    I started out when a mortgage was to be used as a start, and saving was normal. Business pages had tables of deposit rates, not lending. And when I did buy, I got the balance to zero as fast as possible and started enjoying my money as well as continuing to save. And invest.

    Without angst over mortgages, we would see higher rates as a good sign of a healthy economy itching to grow, and banks competing to get money onto their balance sheets.

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  9. SPC (5,641 comments) says:

    anonymouse, maybe – but with so much money (and rising) spent on mortgages and the increased focus on saving maybe not.

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  10. wiseowl (899 comments) says:

    I’m sure for a while we were told that mortgage rates would be 2 to 2.5% above OCR.

    Why are they always more than that.?

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  11. burt (8,275 comments) says:

    OMG – It’s so high right now, it’s about where it was before the failed socialists took over … NZ you have a choice – Make it go much higher by electing the failed ideology of social mountaineering or keep it low ?

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  12. dime (9,980 comments) says:

    How the hell was the OCR at 8%?

    Govt spending?

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  13. mister nui (1,029 comments) says:

    ROJ – I also remember those times of savings rates being widely published and compared. I remember my wise old grandfather used to pore over bank and bond rates, slicing his money up between lots of them to get the best return he could.

    However, now, you must realise that the life of our media is predicated on a booming property market, as a healthy property market creates most of their advertising revenue – without this, they would be fucked. So the media does everything possible to keep the cycle of positive spin going in the property market, this includes mortgage rate comparisons and endlessly telling you to get in now, before you miss the next upswing…

    Oh for a media that can report the news, not make it based on one of their many agendas.

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  14. mister nui (1,029 comments) says:

    I’m getting a bit tired of all these crybaby mortgage holders – they were the fuckwits that bid and bid on shitty cold Grey Lynn villas way beyond any comprehensible real value. If they’re now paying 80k p.a. in interest alone, which many are, then they only have themselves to blame.

    What about all the poor retirees who have foregone interest above the rate of inflation, whilst interest rates have been artificially low? They’ve also been subsidising these idiots that are over-capitalised on their property mortgages through the interest on their savings, which has gone to fund WFF and interest free student loans etc.

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  15. dime (9,980 comments) says:

    “What about all the poor retirees who have foregone interest above the rate of inflation, whilst interest rates have been artificially low? They’ve also been subsidising these idiots that are over-capitalised on their property mortgages through the interest on their savings, which has gone to fund WFF and interest free student loans etc.”

    to be fair, those same retirees are drawing down on the biggest pnzi scheme in history known as the pension.

    “i was paying $80 a week in tax for years! so i deserve my $350 a week in the hand now!”

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  16. mister nui (1,029 comments) says:

    Agreed dime, but unfortunately that is the promise made to them by past gummints. I do commend Cullen for setting up Kiwisaver and also commend him for not making it compulsory. I’ll bet there were many in the Labour caucus at the time who wanted a far more statist/compulsive approach.

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  17. SPC (5,641 comments) says:

    dime, the OCR went to 8% to contain the housing bubble (values doubling in 5 years), but that took us into a recession. This was why Bollard proposed that the RB Governor have other tools than just raising the OCR – such as a surcharge on mortgages.

    A recent development, since house prices escalated once again, is the requirement of a 20% deposit etc.

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  18. mister nui (1,029 comments) says:

    dime, SPC is right. The reason house prices doubled in 5 years was because of the klarkenfuhrer and cullen’s 39% envy/rich prick tax – everybody made losses against their personal income to invest in the rising property market.

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  19. SPC (5,641 comments) says:

    mister nui, not so sure if that was the major factor. House prices rose globally because of loose credit from the Fed 2002 on. That meant banks around the world were loaded up with money to lend (thus sub prime loans etc and hiding bad loans amongst other assets traded between financial institutions). And for a while it was cheap. Here it was magnified by a rise in migration increasing housing demand.

    But yes investors, despite the RB Governors best efforts, were unconcerned about the rising OCR cost of mortgages as they could offset the losses against their taxable income. So it was a factor in why the RB struggled to do anything about it when just raising the OCR.

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  20. dime (9,980 comments) says:

    “such as a surcharge on mortgages.” – yeah that would have gone down well lol

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  21. SPC (5,641 comments) says:

    dime, yeah some people (as yourself maybe) are so thick they fail to determine that a surcharge did not mean they paid anymore than they did or would pay – they would pay the same, just less to the bank and the balance to the government. Money the government could use to pay down debt or reduce taxes with.

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  22. dime (9,980 comments) says:

    SPC – sorry, i should have known that from the sentence of “such as surcharges on mortgages”.

    eg when i eat at a cafe on a public holiday and they charge a 15% surcharge, they don’t reduce the cost of the meal so it balances out when they slap the surcharge on..

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  23. SPC (5,641 comments) says:

    dime, are you functionally illiterate?

    A surcharge on mortgages, as an alternative to raising the OCR, does not increase the cost of home ownership to those holding the mortgage – it would be no higher than it would have been with the OCR increase. Yet as some of the money paid would be in the hands of government they could use it to pay down debt or reduce taxes.

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  24. dime (9,980 comments) says:

    “dime, are you functionally illiterate?”

    I think you’re the illiterate one. You assumed I knew that that is how it would work. I didn’t. I explained that that’s not usually how people think of surcharges. You took that as me not understanding what you were saying.

    Unlike the left, I don’t profess to know everything. I can generally grasp it pretty quickly though!

    The surcharge is an interesting idea. My first thought is – if the money is going back into the hands of the govt, especially a left leaning govt, then they will just spend it. the surcharge will never come off – what people are paying would remain high. sounds dodgy as fuck.

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  25. mister nui (1,029 comments) says:

    The problem with the surcharge idea though is that as dime said, the left would never remove it, as we know how addicted to OPM they are. So, once international economies get into a healthy state and their interest rates rise above ours, all capital will be directed there, we cannot fund our loans without borrowing offshore, so we will be paying a premium to borrow money, that’s if we still can…

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  26. SPC (5,641 comments) says:

    dime, you still do not get it.

    A surcharge in place of an equivalent amount of OCR just means a lower OCR.

    As to you fear that our government would have more money and the foreign owned banks less … WTF.

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  27. SPC (5,641 comments) says:

    mister nui, our OCR has always been one of the highest in the OECD, a 1% surcharge would not change that.

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  28. dime (9,980 comments) says:

    “dime, you still do not get it.

    A surcharge in place of an equivalent amount of OCR just means a lower OCR.

    As to you fear that our government would have more money and the foreign owned banks less … WTF.”

    I get it you fucking moron.

    Person pays 7k on 100k.
    2k goes to govt as a surcharge
    5k goes to bank

    instead of 7k goes to bank or 7%.

    jesus.

    my point is – govt dont like giving up revenue streams. would we ever see the equivalent of low rates ever again? would we see the old “no surcharge for low income families” bullshit

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  29. SPC (5,641 comments) says:

    dime, the OCR has never been below 1%.

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  30. Odakyu-sen (676 comments) says:

    “i was paying $80 a week in tax for years! so i deserve my $350 a week in the hand now!”

    Well now, back in 1981 a loaf of bread might have been (I’ll pick the number out of thin air), say 80 cents. That same brand of bread would be $3.50 today.

    My point is that you may have very well been paying for your today-dollar pension with yesterday-dollar value all those years ago.

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  31. dime (9,980 comments) says:

    “My point is that you may have very well been paying for your today-dollar pension with yesterday-dollar value all those years ago.”

    yeah thats great, so if you could just cover your pension, who was paying for all the other shit like roads, schools etc

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