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OCR cut: The big winners and losers

Newshub logoNewshub 7/08/2019 Scott Palmer
a man sitting at a table: Independent economist Cameron Bagrie warns things aren't looking good for the markets. © Image - Getty; Video - The AM Show Independent economist Cameron Bagrie warns things aren't looking good for the markets.

The Reserve Bank has cut the official cash rate (OCR) to 1 percent on Wednesday - and there could be some big winners and losers.

The cut was by a bigger-than-expected 50 basis points (bp), as it looks to prop-up a cooling economy. So who are the big winners and losers?

Winners

 

Borrowers and homebuyers

Century 21 New Zealand owner Derryn Mayne says it's time for renters to get on a mortgage calculator.

Based on the typical two-year home loan bank special of 3.79 percent, buying a house at the national median price of $585,000, after paying a 20 percent deposit, would cost in interest repayments about the same as paying the national median rent of $500 a week, he says.

"Potential first-home buyers need to head to a mortgage calculator. Once we see how much retail banks are going to pass on, those currently renting might be pleasantly surprised," he says.

"With this OCR cut and the possibility of more to follow, the case to buy will only become stronger and stronger."

Banks have already responded by cutting their home loan rates

Westpac NZ has reduced its Choices Floating rate to 5.34 percent pa and the revolving Choices Everyday rate to 5.44 percent pa.

ASB is encouraging homeowners to make the most of the current low interest-rate environment. It has reduced its variable home loan rate to 5.2 percent pa and lowered its two-year fixed home loan rate to 3.75 percent pa.

"Now is an ideal opportunity for customers to review their home loan to see if they can increase their financial wellbeing," says Craig Sims, ASB executive general manager, Retail.

"For example, customers should consider whether to adjust the ratio of fixed versus floating if they have split their mortgage or whether changing from monthly to fortnightly payments would save them money."

Exporters and tourists

In the aftermath of the cut, the New Zealand dollar tumbled one percent against the US dollar to 64.43 US cents - a 10-month low.

"The New Zealand dollar is headed lower, that's going to be good for exporters," Independent economist Cameron Bagrie told Newshub.

It also means that people travelling here from the US get more bang for their buck.

Losers

 

Savers and investors

But there's bad news for savers and pensioners. Banks will decrease their interest rates on savings accounts too.

There is concern savers might seek to maintain their current level of earnings by seeking out riskier investments.

ASB says it is limiting this reduction by 5bps on its most popular retail savings account, Savings on Call.

"This is about meeting the expectations of our customers and making a deliberate choice to put them first," says Craig Sims, ASB executive general manager, Retail.

"We believe our new lower rates provide a fair and considered outcome for borrowers while also balancing the needs of our savings customers.

Importers, motorists and overseas travellers

However, Bagrie warns the record-low rate is bad news for motorists. As we need to import our fuel, our falling dollar means more pain at the pump.

It's also bad news for travellers as their New Zealand dollar will buy less overseas. But with more cuts on the way, it might be wise to buy overseas currency now.

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