Market Commentary on Interest Rates

Image: Bloomberg News/Landov

The Reserve Bank of New Zealand has just decided not to alter the Official Cash Rate. If you are borrowing right now it is unlikely you will see further big interest rate reductions, so while you can get money at 5.4% the banks are suggesting you fix that rate for the short to medium term.

Here’s the big banks’ forecast:

• ASB economists are sticking to their belief that the Reserve Bank (RBNZ) will cut the official cash rate (OCR) by 25 basis points in September and again in October, despite its views putting it squarely in the minority. Regardless of this, it believes there will be little impact on mortgage rates whether the RBNZ cuts or not.
• ANZ Market Focus is holding equally tightly to its view that the OCR is unlikely to see further cuts, suggesting there is only a one-in-five chance of an OCR fall. However, it suggests that should the RBNZ decide to cut, it is likely to be a 50 basis point reduction, rather than 25 basis points. It describes the interest rate curve as caught in a “tug-of-war” between global sentiment and the RBNZ’s “on-hold for longer” view.
• Westpac’s Weekly Commentary states that the RBNZ struck a “surprisingly dovish chord” in last week’s OCR review, suggesting it was more “downbeat” than June’s Monetary Policy Statement. There was no acknowledgement of the improving global outlook, or that domestic factors are “setting the stage for recovery”, it says.
• With much focus on the high NZ dollar in the RBNZ statement, Westpac’s central view is that if the market is overestimating the recovery’s strength, the NZ dollar will fall by itself; while if the market is right in its recovery assumptions then a strong NZ dollar will not be enough to negate that. It continues to believe that interest rates have bottomed and recommends fixing for six months to one year.
• When it comes to refixing most are recommending that short term is still the way to go.
• Best rate advertised this week 5.39%. Best quoted rate this week 5.30%.

For more information call Sue Isherwood or Craig Jones at Mortage Express on 0800 226 226.