Low inflation has been behind a more generalised theme of low interest rates in recent years. More immediately, the desire of central banks around the world to provide support through low interest rates has also played a significant role, particularly as the Covid-19 outbreak has taken hold. This was evidenced by the RBNZ slashing it’s already historically low interest rate setting, the Official Cash Rate (OCR), to just 0.25% on 16th March.
The OCR is an overnight interest rate used for settlements between banks and has its most significant impact on shorter term rates. This was evidenced by retail banks passing the cut in the OCR through to cuts in floating mortgage interest rates at the time.
The interest rates that banks charge are also influenced by broader funding costs which has witnessed the Reserve Bank resort to another tool, quantitative easing (Large Scale Asset Program), to influence a broader range of wholesale interest rates and through them retail interest rates.