24/07/2008 Mixed reaction to OCR cut to 8%
OCR seen as good news for exporters; but effects not to be felt until 2010 in retail sector; National concerned gains eaten by living costs
There has been a mixed reaction to news Reserve Bank Governor Alan Bollard has cut the Official Cash Rate to 8 percent.
Macquarie Private Wealth's Kerry Porter says it is significant news for exporters. He says not only has it been cut this morning, but with the signalling of further drops, the New Zealand dollar weakened immediately after the news. Mr Porter says that will be particularly good news for exporters.
However, BNZ chief economist Tony Alexander is warning it will take some time for the effects of it to trickle down to the retail sector. He believes it is not reasonable to expect firm conditions until at least 2010 when interest rates will be at a "neutral level."
The political reaction from the opposition has been swift. National says it is bad news for the country. Finance spokesman Bill English says homeowners will welcome the relief but any gains will likely be eaten up by rising living costs. He says it also shows the economy is not doing well.
Mr English says worryingly the decision to cut interest rates is a reflection the economy is not growing and that unemployment may become a big issue. He also fears the Government will use the rate cut as an excuse to make big spending promises at the election.
24/07/2008 OCR dropped to 8 percent
Drop in OCR is first in 5 years; comes as Dr Alan Bollard reveals possibility of further cuts if outlook for inflation continues to improve
The Official Cash Rate has been dropped by the Reserve Bank for the first time in five years.
Dr Alan Bollard has announced it is being dropped by 0.25 percent to 8 percent.
In his statement released this morning, Dr Bollard said "more unpleasant international news has emerged since the June Monetary Policy Statement, and there is a risk that the domestic economy will slow further. Moreover, the cost of funds raised abroad by banks has been rising in recent months as the international financial situation has deteriorated. Today's cut will help to mitigate the effect of these increases on the actual borrowing costs paid by firms and households."
He added: "Recent oil and food price increases mean that annual CPI inflation should peak around five percent in the September quarter of this year. However, we expect that inflation will return inside the target band in the medium term. The weaker economy is expected to reduce pressure on resources, making it more difficult for firms to pass on costs and for higher wage claims to be agreed. Economic activity is likely to remain weak over the remainder of 2008. The ongoing correction in the housing market, together with the very high oil prices, will limit household spending and constrain the extent of recovery. However, high export prices and an expansionary fiscal policy are expected to contribute to a gradual pickup in activity through 2009."
He has also hinted at further cuts to possibly come by saying that "Consistent with the Policy Targets Agreement, the Bank's focus will remain on medium-term inflation. In this regard, it is important to note that monetary policy has been reasonably tight for some time, and is now restraining activity and medium-term inflation pressures. Provided that the outlook for inflation continues to improve and there is no excessive exchange rate depreciation, we would expect to lower the OCR further."
24/07/2008 OCR dropped 0.25 percent
Reserve Bank governor Dr Alan Bollard drops the Official Cash Rate by 0.25% to 8%
The Reserve Bank has just announced the Official Cash Rate has been dropped to 8 per cent down 0.25 percent.
However, a credit reporting agency doubts a drop in interest rates will make life easier for borrowers.
Dun and Bradstreet general manager John Scott says the cut will not necessarily mean relief for mortgage holders. He says banks will probably look at trying to conserve their margins. Mr Scott says demand for oil will reduce towards the end of this year, bringing some relief to households.
24/07/2008 Hanover Finance praised for acting early
Business expert says decision to freeze more than $500m of investors' money says company acting early to try to salvage what it can
A business expert believes Hanover Finance has acted early to try to salvage what it can.
The company yesterday put a freeze on more than $500 million of its 16,500 investors' money. At the end of last year the company was ranked the country's fourth largest, with a loan book close to $750 million. Business correspondent Roger Kerr says the directors have a responsibility to act early. He says they have to be careful that they are not trading while insolvent and they must ensure their prospectus is an accurate reflection of the companies' position.
But a support group for investors in collapsed finance companies wants the receivers to take control of Hanover Finance. Directors Eric Watson and Mark Hotchin withdrew some $20 million in dividends from the organisation in the last 12 months.
Exposing Unacceptable Financial Advice Group coordinator Suzanne Edmonds says shareholders have borrowed money for their own lives, but says that money was never theirs to take. She believes they must be held accountable.
The Shareholders' Association is calling for receivers to start working over Hanover Finance. Shareholders' Association chairman Bruce Sheppard says bond holders would be nuts to approve a moratorium. He says company directors Eric Watson and Mark Hotchin pulled at least $20-million in dividends in the last 12 months, and only a liquidator can claw that back.
24/07/2008 Govt watching Hanover Finance situation
Major shareholder confident Hanover Finance will keep operating despite freezing $554 million of investors' money
The Finance Minister Michael Cullen is being kept informed of developments following the decision by Hanover Finance to freeze $554 million of investors' money.
The finance company is the latest to hit troubled times. However, its major shareholder is confident the company will keep operating. Following the collapse of several finance companies earlier this year, the Securities Commission began an investigation. It is looking into the actions of some of the companies to decide whether they have been honest with investors.
A spokesman for Michael Cullen says the Government believes its legislation going through Parliament will help tighten regulation of the finance sector, including reforms to provide better information for investors. Programmes have been announced during the year to bring finance companies under stricter control and also to provide hope investors will be better informed.
The Securities Commission is also investigating the action of some finance companies to discover whether they acted ethically. So far, 24 of the 49 finance companies operating have collapsed or reported problems in paying back deposits.
Two major shareholders say they are prepared to put their own money into Hanover Finance to repay investors.
Mark Hotchin says he and co-owner Eric Watson have reinvested about $70 million over the past 18 months, but did not put more of their own cash in because they did not think it was necessary.
He says they intend to take a plan to the trustees in late August that will include fresh financial support from Mr Watson and himself.
Meanwhile, Hanover Finance is fighting a legal battle with a Los Angeles developer to get back $30 million. Major shareholder Mark Hotchin says about $50 million is tied up in Queenstown's Five Mile development, which they have put into receivership and hope to resolve soon, and the golf course near Taupo is sold. But he says a difficult developer is refusing to pay them in relation to two California properties worth around $30 million. He is confident they will get most of the money back.
But that confidence is not echoed by an investment analyst. Milford Asset Management executive director Brian Gaynor does not know the full state of the company's lendings. He says all we know is the property sector in New Zealand is in serious trouble, and Hanover has lent to that sector. Mr Gaynor suspects they will be much better than Bridgecorp, but it is highly unlikely investors will get 90 cents in the dollar.
