KEY POINTS:
Last week's shock jobs number has markets picking the Reserve Bank will move to cut interest rates later this year, sooner than it had so far been signalling.
While that might give hope to home buyers, the reality is New Zealand's mortgage rates, thanks to our overwhelming preference for fixed-term home loans and much to the RBNZ's chagrin, are not particularly responsive to changes in the official cash rate.
Given our major banks source up to 40 per cent of the funds they on lend to households and businesses, from overseas money markets, it is what is happening there that largely drives local rates.
As reported, it has been the drying up of liquidity and higher charges for the perceived degree of risk on these markets because of the subprime credit crunch that has driven a series of mortgage rate hikes by the major banks this year.
While there have been a number of reports that the worst of the credit crunch may be over, it's no sure thing. The Reserve Bank signalled as much last week when it introduced a series of measures designed to provide what amounts to emergency funding for banks should yet more bad news disrupt financial markets further.
The RBNZ's Financial Stability Report also contained a couple of other pieces of information that suggest that whatever happens with the OCR, mortgage rates will not fall as quickly as they have risen.
The RBNZ, as part of its quest to make sure the local financial sector can better withstand further financial turmoil, wants the banks to lengthen the maturity profile of their offshore borrowing.
During the credit crunch, the banks have been increasingly borrowing at the shorter end of the interest rate curve, where the rates on offer were somewhat lower.
However that has led to a bulge of maturing loans which will need to be refinanced over a relatively short period next year.
That's a potentially large headache if markets have not recovered or if they have deteriorated further by then and may put pressure on banks ratings, Moody's warned of a couple of weeks ago.
Last week RBNZ Deputy Governor Grant Spencer acknowledged that should the banks do as they are asked, and the RBNZ can compel them if it wishes, their cost of funding will rise and that will inevitably be passed on to their customers.
Meanwhile, the RBNZ also noted that the banks had, in recent months, been rebuilding their margins, or the difference in interest rates between what they pay for the money they source from financial markets and depositors and what they charge on loans to customers.
However all the banks to varying degrees will face rising costs to cover loans that go bad as the economic slowdown bites - another factor that will probably see margins widen and mortgage rates staying high for longer.
