By Joe Helm
The official cash rate is a week old today and financial markets are steady.
So steady they are almost boring.
Stefan Dunatov, treasury analyst with HSBC Markets, said the volatility had gone.
"That's what the Reserve Bank wanted but it's pretty boring."
Last Wednesday the Reserve Bank surprised many in financial markets by setting the rate at 4.5 per cent, the higher end of market expectations.
Since then wholesale money market yields have hardly moved and the kiwi dollar has traded in a narrow range.
The 90-day bank bill yield has traded between 4.65 and 4.7 per cent during the week while the kiwi has traded between 52.45USc and 53.6c.
Bancorp economist Stuart Marshall said: "It's a little bit dull, isn't it."
Mr Marshall said the Reserve Bank had got the stability it wanted.
"What's different today is that the volatility has moved from one market to others like the futures, swaps and forward rate agreements."
Martin Poulsen of Bankers Trust said the cash rate had reduced the volatility in the short end of the market but there was still volatility further out in the yield curve.
"There is no evidence yet to suggest the volatility past the 18 to 24-month part of the curve has been reduced," he said.
"The cash rate has reduced the volatility in the short term bill market but we don't know if that will last. It is premature to say the volatility has gone from the market."
Mr Marshall said the introduction of the cash rate had not reduced the amount of work that had to be done in the financial markets but it had lengthened the time focus for companies.
"They're not so worried if today is a good time to set rates or whether tomorrow or next week is going to be a better time. They know rates are going to be pretty steady, possibly for the next two years so they can focus further out than before."
Mr Poulsen did not think the new steadiness in the markets was a threat to jobs.
"They've had an official cash rate in other countries for years and they've still got plenty of dealers," he said.
"Mergers and takeovers of financial institutions is probably a bigger threat along with the movement of institutions and staff from Wellington to Auckland and from Auckland to Australia."
He predicted there would be a blurring of traditional skills among dealers.
"The demarcation between the money market and the bond market is blurring and that will probably continue into the currency markets. New skills are being developed."
Volatility goes elsewhere in cash regime
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