Tony Alexander

Economic Commentaries

Weekly Overview March 17 2016

Thursday March 17th 2016

In this week’s Overview I start by taking a look at reasons why not all banks have passed on all the 0.25% cut in the Reserve Bank’s official cash rate. It comes down to changes in the OCR not being the best measure of changes in overall bank funding costs since the global financial crisis – something well known by the Reserve Bank and a message delivered by all of us since 2008. If the Reserve Bank wants all floating rates to drop at least 0.25% given that the credit spread for us borrowing funds offshore has increased sharply recently, all they have to do is cut the cash rate again. Simple.

I also take a three page look at the dairy sector with a graph on page 2 which visually explains why the sector went ballistic post-GFC and which allows you to generate your own “assumption” about what the payout for the next five years will average if we strip out the boom period and look at the underlying price trend from 1990 to 2007. You’ll need a ruler. Instructions at the bottom of page 4 for those who have never extrapolated a trend before.

I also take a quick updated look at the Auckland housing market noting the strength seen in February’s numbers, rumours of Chinese buyers returning, ever-increasing migration, and how dwelling consent numbers are running at about half the level needed to start reducing the shortage. The price implications are obvious – especially with the recent (small) cuts in mortgage rates with it seems more to come.

Probably worth a few minutes to have a read this week.