RBNZ: Policy rate changes takes time to move mortgage rates

The Reserve Bank of New Zealand (RBNZ) came out with its analytics on how changing policy rates could affect the housing market during early Monday morning in Asia.

Key quotes (from Reuters)

Changes in its policy rate take around six months to have a significant impact on mortgages rates.

A change of 1% in the official cash rate (OCR) moves average two-year mortgage rates by 0.34% within a month, but the big impact on mortgage rates takes place six months later where about 0.8% of the 1% change in the OCR is passed through.

Mortgage rates move with official interest rates, but it takes time.

Pass-through from changes in monetary policy increases over time, with peak impact on mortgage rates about 6 months after change in OCR.

Household borrowing in form of mortgages makes up around 43% of commercial bank balance sheets, a large part of all borrowing in New Zealand.

Small banks seem to pass on changes in OCR more than large banks.

Research also found preliminary evidence that some banks pass on more of the change in official interest rates than others.

In research, (RBNZ) finds that contemporaneous OCR pass-through to 2-year mortgage rates is around one-third.

Effect of change in OCR on pass-through to 2-year mortgage rates increases over medium-term, where peak effects occur after 6-7 months.

FX implications

NZD/USD fails to react to the RBNZ comments, keeping Friday’s upside momentum around the 0.7000 threshold.