As covered in our Monetary Policy Briefing report released to subscribers, Governor Orr's pro-growth experiment will lead to a disaster.
His decisions are contrary to global best practise and are supported by manipulated forecasts.
The analysis in the last report isn't repeated here but this Raving focuses on one of the implications: the opportunity Governor Orr's experiment offers borrowers to lock in cheaper longer-term debt.
Emerging opportunity to lock in cheaper longer-term debt
There are good reasons to take issue with the Reserve Bank's forecasts as outlined in the latest Monetary Policy Briefing report, but I agree with some of the comments that accompanied today's OCR decision:
"While GDP growth in the June quarter was stronger than we had anticipated, downside risks to the growth outlook remain."
"Domestically, ongoing spending and investment, by both households and government, is expected to [in time] support [stronger] growth."
GDP growth was stronger in the June quarter than expected by the Reserve Bank (chart below).
This resulted in a minor setback to the market-led fall in swap/wholesale rates Governor Orr has been effectively encouraging (second chart below).
The fall in swap rates may not have finished flowing to lower fixed mortgage rates with this focused most recently on the 3-5 year fixed rates (adjacent chart).
Mortgage and swap rates aren't linked directly but there tends to be an indirect link albeit one that can vary quite a bit over time.
Shorter-term fixed rates are still below longer-term rates but if GDP growth disappoints somewhat over the next couple of quarters the gap should narrow further.
If longer-term rates fall further they will offer even better protection than now against Governor Orr's misguided pro-growth experiment.
