Interest Rate Strategy: Short rates hit record low
- Short term interest rates have hit a record low. The 90-day bank bill rate traded at 1.905% and some government rates like T-bills and RB bills have recently been bid below the cash rate of 1.75%. Domestic liquidity is gushing, as banks are well ahead of funding targets and credit growth is softer.
- As these conditions continue, the 2-year swap rate has a good chance of reaching a fresh low for the year, down towards 2.10%. The top of the range into year-end and early next year is probably more like 2.25% now, with global forces being the most likely source of any upside pressure.
- The proposed new policy framework stemming from revisions to the RBNZ Act has had no bearing on our monetary policy outlook. Some traders and market commentators see the changes from a dovish perspective, but we do not agree with that assessment.