Spotlight on Reserve Bank governor over contrary market reaction

Savers are winners in a small way following the Reserve Bank’s interest rate cut.

The spotlight was on Reserve Bank governor Graeme Wheeler at a Christchurch business function on Friday to explain the contrary reaction of financial markets.

Normally when the Reserve Bank cuts the official interest rate the banks follow by cutting deposit rates and mortgage rates, and the exchange rate also falls.

This time banks reacted by lifting deposit rates slightly, with minimal reductions to floating rate mortgage borrowers.

This resulted in risen exchange rate instead of falling.

Wheeler said the rise in deposit rates was because banks preferred to obtain funds from New Zealand savers rather than more costly overseas sources.