Banks Favor Borrowers Over Savers in OCR Increase

New data from the Financial Markets Authority (FMA) reveals that banks in New Zealand have passed on the full impact of the recent official cash rate increase to borrowers, but savers have not.

The FMA analyzed information from eight financial institutions that account for 98% of housing loans in the country. The data shows that all banks increased their floating home loan rates by at least the entire 0.25 basis point official cash rate (OCR) increase earlier this month.

The Co-Operative Bank passed on slightly more than the required amount. In contrast, on-call savings accounts received an increase of between nothing at ASB and five basis points at ANZ, to as much as 20 basis points at The Co-Operative Bank.

This discrepancy has raised concerns that savers are not benefiting from the OCR increase. Simplicity chief economist Shamubeel Eaqub described it as a 'sad state of affairs,' saying it's 'a worry that people have so much money in term deposits.' He suggested that savers should consider moving their funds to a more conservative investment.

Gareth Kiernan, acting managing director and chief forecaster at Infometrics, explained that floating rates are now comparable with what they were before the Reserve Bank cut the official cash rate from 3% to 2.5% last October. He attributed the slower response of deposit rates to the soft housing market and banks' relatively good supply of deposit funds.