Reserve Bank: to bark or bite?
Financial markets were betting there was a 24% chance of the Reserve Bank hiking the official cash rate to 5.75% on the eve of what ASB was describing as “one of the most contentious” monetary policy statements for a while.
The Reserve Bank will announce its decision at 2pm today, with Kiwibank chief economist Jarrod Kerr having previously said it was on the edge of its seat.
The estimate that the chance of a hike is just under one-in-four is based on the price that traders were paying for debt yesterday morning.
ASB senior economist Kim Mundy said that was a “bit of a pull-back” from a few weeks ago when traders were viewing a rate-rise as more “50:50”, suggesting those expecting a rise had lost a little bit of conviction.
ANZ chief economist Sharon Zollner has forecast the central bank will raise the official cash rate (OCR) by 25 basis points both today and in May, which if correct would take the key interest rate to 6%.
But most other forecasters believe it is more likely the Reserve Bank will leave the OCR at 5.5% while attempting to sound hawkish and continuing to voice concern over the pace at which inflation expectations are retreating.
Mundy said there had been little fresh data this week to sway last-minute expectations. Whether mortgage rates might fall in the event that the Reserve Bank did leave rates on hold might depend on the tone of its statement, she said.
“We still expect it's going to be a very hawkish statement, focused on the risk that rates could go higher.”
There has been some speculation the Reserve Bank might not reach a consensus and that its decision might go to a vote for only the second-time ever.
That could have an impact on how financial markets viewed the monetary policy statement, Mundy said.
“A decision not to change the OCR by unanimous vote would clearly be less hawkish than one in which there is dissent.”
Westpac said it believed the Reserve Bank’s goal would be to leave the OCR at 5.5% while at the same time trying to dissuade banks from building a higher chance of rate cuts this year back into their forecasts.
To that end, it was likely to leave a rate rise on the table for its next full monetary policy statement in May, it predicted.
Fintech companies Squirrel and Dosh want the Commerce Commission to end banks’ control over the development of open banking.
Bank-owned PaymentsNZ applied to the commission for permission to continue running its API Centre, which is developing open banking standards intended to one day allow third parties to connect with banks to offer improved payment and account management services.
But PaymentsNZ is a private company owned by ANZ, Westpac, Bank of New Zealand, ASB, Kiwibank, TSB, HSBC and Citibank.
Fintech companies Dosh and Squirrel have written to the commission to ask that a government-owned organisation be appointed to develop open banking, which has the potential to increase competition and innovation in banking.
PaymentsNZ says the API Centre is an efficient way to develop open banking standards, and avoids banks having to enter bilateral arrangements with individual fintech companies.
Banks have already been accused of dragging their heels on open banking, which is more advanced in Europe and the UK, and fintech companies have now told the commission that leaving banks with the whip hand potentially allows them to slow, or restrict the development of open banking.
Local payments fintech Dosh has told the commission that there is a massive power imbalance between banks and fintech companies, and that PaymentsNZ was “conflicted“.
“Dosh believes an independent organisation should be appointed to oversee the roll out and governance of Open Banking in New Zealand,” Dosh said in a letter to the commission, which has invited public submissions on PaymentsNZ’s application.
Dosh said the organisation in control of open banking standards “must be independent and seen to be independent” from both the banks and fintech companies to ensure the competing interests of both parties are fairly met.
It suggested the Financial Markets Authority Te Mana Tātai Hokohoko, which is the regulator of financial markets, should be the appointed body.
“This approach aligns with other overseas jurisdictions that are more progressed with Open Banking than New Zealand,” Dosh told the commission.
Dosh co-founder Shane Marsh said if the API Centre was allowed to continue, it should be “decoupled” from PaymentsNZ, and report directly to the FMA.
Squirrel, which is a major mortgage broking and lending brand, said PaymentsNZ had been working on APIs since 2015.
“What cost has this delay had in terms of the pursuit of innovation and competition? Is it acceptable that a bank-owned entity has been unable to reach consensus on a mandate until recently to implement new services from work commenced in 2015?” Squirrel chief operating officer, Dave Tyrer, said in the company’s submission to the commission.
He said had regulators intervened, consumers would by now have seen more innovation, and enhanced competition.
“Over those nine years, New Zealand’s five main banks have arguably sustained or increased their dominance, while the fledgling fintech sector has been starved of opportunity,” he said, pointing to high bank profitability suggesting a lack of competition.
“The Commerce Commission, in conjunction with the Council of Financial Regulators, should determine the best owner within government to manage ‘Open Standards’ and reject Payments NZs application to control open banking,” Tyrer said.
The commission intends to make a decision by July 10.