Big moves unlikely in deposit rates

Term deposit rates won’t move much in either direction in 2013 unless there are big economic changes either locally or globally, an economist says.

Monday, 7 January 2013

by Niko Kloeten

ANZ chief economist Cameron Bagrie said deposit rates are probably going to be “reasonably stable” in the next year.

“The clearest trend for interest rates today is the lack of one.  If you go back and have a look at interest rates in general in the last three years they haven’t moved a lot either way as opposed to what we’ve seen historically.

“There’s a myriad of economic headwinds and tailwinds hitting the economy.”

Bagrie said there had been two big drivers of retail deposits in the last few months.

“Firstly, the banks have been pretty flush with cash and deposits have been coming in the door faster than credit has been going out the door.  This has reduced competitive pressure.

“Secondly, international funding costs have declined over the last three months which is a bellwether for the local market; if it’s getting cheaper globally they don’t have to be as aggressive.”

Bagrie said it would take only one “mild flare-up” in the United States or Europe to cause funding costs to rise but this is “a risk as opposed to reality”.

The Official Cash Rate is unlikely to have any impact next year; he said the next move for the OCR is likely to be up but this probably won’t happen until 2014.

And he said if the housing market doesn’t cool the Reserve Bank could try some of its prudential tools such as increasing the core funding ratio or requiring banks to hold more capital, which could have an impact on demand for deposits.

These moves would likely be made in preference to raising the OCR, due to 7% unemployment and New Zealand’s “grumpy” growth trajectory.

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