Reserve Bank Holds OCR at 2.5%

Interest Rates

The best rates we are able to source at the present time are:

Floating                     5.59%

6 months                    5.20%

12 months                  5.29%

24 months                  5.65%

36 months                  6.05%

48 months                  6.30%

60 months                  6.60%

Please be aware that these are carded rates and we can often improve on them

The Reserve Bank this morning held the Official Cash Rate at 2.5 per cent.  In doing so it has noted that there are inflationary pressures building up in the economy and that it will have to return the OCR to more normal levels “soon”.

It is now likely that the predicted rise in rates will commence in March at the Bank’s next meeting but there are several reasons why the Official Cash Rate will not go as high as it did in the last round of interest rate tightening that started almost exactly ten years ago.

• First and foremost the starting point is a lot lower.  The last cycle started off from an Official Cash Rate of 5 per cent as opposed to 2.5 per cent this time.
• The time for any increase to take effect will be much shorter.  Last tightening the majority of home loans were on long term fixed rates as we had a flat or even inverse interest rate structure.  This time nearly 75 per cent of mortgage debt is on either floating or fixed rates of less than twelve months.  That means any moves will have an almost instant effect.
• On a more technical note the Reserve Bank has lowered the rate at which it believes it tips from being restraining and curbing inflation to stimulating the economy.  That point has reduced from 6 percent to 4.5 per cent.  As the current level of that measure is 2.9 per cent we are only 1.6 per cent away.
  

All in all we know interest rates are going to increase and to what extent is anyone’s guess but I believe there is much to counter the harbingers of doom predicting 8 per cent plus interest rates across the board.

The remainder of this year will tell the tale.