Most days now in the lead-up to the Reserve Bank Official Cash Rate (OCR) announcement (it is expected to rise from 2.5% to at least 3.0%) media outlets are featuring articles on how much rates need to rise to conquer inflation. As far as I can work out, the Big Bank economists have largely morphed into PR and Comms types who are regularly in touch with the likes of the Herald appearing to helpfully explain how it all works, often complete with huge photos of themselves. Looks to me more like free advertising for their respective banks under the guise of public education.
On that note, let's shine a light on the Big Bank's Great Game. What is it? My bank currently pays a "base rate" of around 0.35% on deposit accounts. They (the Big Banks) are then able to take my cash (and the cash of millions of other Kiwis struggling under the "cost-of-living-crisis") and deposit it in their (Big Bank) accounts at the Reserve Bank where they earn the OCR. In other words, they get 2.5%, set to increase to 3%, on their deposit accounts whilst giving us 0.35% on ours. Talk about a license to print money. So how much do the Big Banks actually have on deposit at the RBNZ ... around $40 billion to $50 billion.
By the way, you, as an individual, can't have an account with the RBNZ and get the OCR - no, those accounts are only legally allowed to be held by the Big Banks.
Now although the OCR is in the news every other day, as Kiwis are terrified of it increasing sharply which could throw them into mortgage chaos and lead to rising unemployment, maybe one should start by asking the question, "What is the OCR?". Here is the one line answer given by the Bank of England whose equivalent interest rate is called the Bank Rate: "The Bank Rate determines the interest rate we pay to commercial banks that hold money with us". Here is the one liner from the Reserve Bank of NZ, "The OCR is the wholesale rate for borrowing money" (see source below).
Maybe the RBNZ just doesn't want us talking about the OCR as being the rate that the Big Banks are currently being paid on their enormous deposits, since it would make we, the non-banker-public, irate, so has given a different emphasis to the Bank of England?
Better stop this blog now and go back to reading the lovely comments from Big Bank economists in prominent articles in the media today explaining to us, the little people, how increases in the OCR will mean higher mortgage repayments and how they're here to help. You can bet they will leave out the "minor" detail as to how it will mean bigger interest receipts for their Big Bank employers which hold $40-50 billion of deposits at the RBNZ.
Sources: