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Supporting information:

Series description – Interest and exchange rates

| B1 – Exchange Rates | | B2 – Wholesale Interest Rates | | B3 – Retail Interest Rates | | B4 – Foreign Exchange Turnover |

General Terms

CROSS RATE

Exchange rate relationship between two currencies based on each others relationship with a third, typically the US dollar.

INTEREST RATES

A charge, quoted as a quarterly, semi-annual, or annual rate, paid by the borrower to the lender over a period of time. It is compensation to the lender for the sacrifice of the immediate use of money and for the inflationary erosion of its buying power over the life of a loan. Interest rates are sensitive/responsive to the supply and demand factors of credit and to inflationary expectations.

MID-RATES

Financial institutions trading financial instruments will normally quote both bid and offer rates for those financial instruments. The mid-rate is the rate in the middle of this range.

NEW ZEALAND MARKETS

Made up of financial institutions that will trade, both New Zealand cash, and financial instruments. They will quote both bid and offer rates.

B1 Exchange rates – bilateral rates and TWI

EXCHANGE RATE

The exchange rate is the rate at which one currency is exchanged for another currency. All average exchange rates use representative 11.10am market mid-rates from April 1991. Representative 3:00pm exchange rates were used before April 1991.

THE EURO AND THE NZD/EUR

The euro (currency code EUR) replaced the national currencies of certain members of the European Union on 1 January 1999. Until 31 December 1998 the RBNZ collected the NZD/DEM (Deutsche mark). From 5 January 1999 (the first banking day in 1999) the RBNZ started to collect the NZD/EUR. Note that the euro replaced the Deutsche mark as a TWI contributor on 5 January 1999. The Official Fixing Rate for converting the Deutsche mark to the euro is 1.95583.

TRADE WEIGHTED INDEX (TWI)

The trade-weighted index (TWI) is a measure of the value of the New Zealand dollar (NZD) relative to the currencies of New Zealand’s major trading partners. The TWI is the Reserve Bank’s preferred summary measure for capturing the medium-term effect of exchange rate changes on the New Zealand economy and inflation.

WM/REUTERS NEW ZEALAND FIX 14:00

The 2pm reference rate for the New Zealand dollar, against the US dollar, is the result of co-operation between the New Zealand Financial Markets Association, World Markets Company and Reuters. The new reference rate is referred to as the "WM/Reuters New Zealand Fix 14:00", and is calculated using an internationally accepted methodology. The series began on 1 July 2008.

More details can be found here:

B2 Wholesale rates

OVERNIGHT INTERBANK CASH RATE

The Overnight Interbank Cash Rate is the average interest rate of secured/unsecured overnight cash transactions that the market (price makers) quote each other for the purposes of lending and borrowing short-term (overnight) money, without the need for Reserve Bank facilities. This series continues on from the "Call Money Market" series published by the Reserve Bank up to June 1999.

BANK BILLS

These are mostly issued as Registered Certificates of Deposit (RCD) but can also be a Bill of Exchange issued or accepted by a bank. Bills of Exchange represent only a very small portion of total securities outstanding in this category. Bank bill yields are 11.10am market mid-rates.

1 YEAR BOND

The one-year benchmark for New Zealand Government bonds with a fixed interest coupon paid semi-annually in arrears. The bonds are redeemable at par on maturity. The historical record of bonds used as the 1-year benchmark is available here.

2 YEAR BOND

The two-year benchmark for New Zealand Government bonds with a fixed interest coupon paid semi-annually in arrears. The bonds are redeemable at par on maturity. The historical record of bonds used as the 2-year benchmark is available here.

5 YEAR BOND

The five-year benchmark for New Zealand Government bonds with a fixed interest coupon paid semi-annually in arrears. The bonds are redeemable at par on maturity. The historical record of bonds used as the 5-year benchmark is available here.

10 YEAR BOND

The ten-year benchmark for New Zealand Government bonds with a fixed interest coupon paid semi-annually in arrears. The bonds are redeemable at par on maturity. The historical record of bonds used as the 10-year benchmark is available here.

MCI

The Monetary Conditions Index (MCI) is a combination of the TWI and 90 day bank bill rates, in which a two percent increase (decrease) in the TWI is equivalent to a one percentage point increase (decrease) in 90 day rates. A one-point change on this index is equivalent to a 0.01 percentage change in the 90 day rates in the absence of a change in the TWI.

This series has been discontinued.

OFFICIAL CASH RATE (OCR)

The Official Cash Rate (OCR) is an interest rate set by the Reserve Bank to implement monetary policy, so as to maintain price stability. See ‘What is the Official Cash Rate?’’ and ‘Monetary policy implementation: changes to operating procedures’ for more details.

B3 Retail interest rates on lending and deposits

FLOATING FIRST MORTGAGE NEW CUSTOMER HOUSING RATE

The interest rate surveyed is the floating (not fixed for a specific term) first mortgage interest rate offered to new borrowers for residential property, weighted by each surveyed institution's total lending outstanding for housing purposes.

BUSINESS LENDING RATE

The business lending rate is a weighted average interest rate (WAIR) for NZ resident business borrowing (including agriculture) from registered banks. The business lending rate is not surveyed directly, but is calculated as a residual from the existing monthly WAIR for all registered bank NZD claims, which has been surveyed and published since June 1998.

To calculate the business lending rate, non-business lending categories are identified:

  1. Housing and credit card lending totals comprise more than half of all NZD claims. WAIR are surveyed monthly for these series.
  2. WAIRs are estimated for five other loan categories that are not included in the Bank’s aggregate business and agriculture loan totals (table C5). These include lending to:
    1. Finance (both interbank and other finance);
    2. Insurance;
    3. Government and defence (in effect; local authority claims);
    4. Other consumer loans, and;
    5. Non-resident lending

Estimation of WAIRs for the five listed categories draws on market prices for 90 day bills, two and three-year swap rates, published consumer loan interest rates, and the Bank’s knowledge of market pricing practices. Given the nature of lending to these categories and their aggregate share of total NZD claims (around 10%) it is the Bank’s view that the calculated business lending rate is not materially affected by the estimation process.

Subtracting (1) surveyed housing and credit card loan WAIRs and (2) estimated WAIRs for the loan categories from the total NZD claims WAIR delivers a calculated business lending rate as a residual WAIR.

As the source data for the business lending rate is not available with the immediacy of the survey data used for other interest rates in table B3, the business lending rate is published with a one month lag. Coverage is also wider as it includes all registered banks.

SME OVERDRAFT RATE

The small- to medium-sized enterprise overdraft rate, SME overdraft, is the base interest rate for new overdraft loans for SME non-farm enterprises. The rate in table B3 is weighted by each surveyed institution’s share of the total value of overdraft lending subject to the business base rates offered. The rate measures the set base rate component of the product offered to customers and does not include any margin component added to this rate, which is related mostly to individual borrowers’ credit risk.

The SME overdraft rate was previously published under the name of business base lending rate (BBLR). The new name more accurately reflects the underlying loan products being surveyed. There is no change to the source data stemming from this name change.

SIX MONTH TERM DEPOSIT RATE

This rate is the interest rate paid for a new six month term deposit of $10,000, weighted by each surveyed institution’s total NZ dollar funding.

CALL DEPOSIT RATE

The interest rate paid for a deposit of $10,000 placed at call, weighted by each surveyed institution’s total NZ dollar funding. From May 2009, the call deposit rate series has been discontinued.

B4 Foreign exchange monthly turnover

FOREIGN EXCHANGE TURNOVER

Turnover data provide a measure of market activity, and can also provide a rough proxy for market liquidity. In the published data turnover is defined as the absolute value of all deals concluded (but not closed) during the period (the day), and is measured in terms of the nominal or notional amount of the contracts. No distinction is made between sales and purchases (ie a purchase of $5 million against sterling and a sale of $7 million against NZD would amount to a gross turnover of $12 million). The turnover between reporting dealers is halved to provide an equivalent “single-sided” or “net” turnover between dealers. The overall turnover data are published on a single-sided basis.

SPOT

Spot transactions are single outright transactions involving the exchange of two currencies at a rate agreed on the date of the contract for value or delivery (cash settlement) within two business days. The spot leg of swaps are not included among spot transactions but are reported as a swap transaction even when they are due for settlement within two days (i.e. spot transactions are exclusive of “tomorrow/next day” transactions).

OUTRIGHT FORWARDS

Transaction involving the exchange of two currencies at a rate agreed on the date of the contract for value of delivery (cash settlement) at some time in the future (more than two business days later). This category also includes forward foreign exchange agreement transaction (FXA), non-deliverable forwards and other forward contracts for differences. This does not include “tomorrow/next day” transactions. The most likely user would be a local “non-financial” market participant e.g. Fonterra.

FOREIGN EXCHANGE SWAPS

Transaction involving the actual exchange of two currencies (principal amount only) on a specific date at a rate agreed at the time of the conclusion of the contract (the short leg), and a reverse exchanges of the same two currencies at a date further in the future at a rate (generally different from the rate applied to the short leg) agreed at the time of the contract (the long leg). Both spot/forward and forward/forward swaps are included. Short-term swaps carried out as “tomorrow/next day” transactions are also included in this category.

REPORTING DEALERS

For the purposes of the RBNZ FX turnover survey, “reporting dealers” are interbank NZD pricemakers in this timezone.