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

Floating                     5.59%

6 months                    5.20%

12 months                  5.35%

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

It has come as no surprise that the Official Cash Rate has, this morning, been increased by 25 basis points to 2.75%.

The Reserve Bank in its announcement made the following comments in support of the increase:

• Economic expansion in New Zealand is strong and becoming more broad based.  They estimate 3.3% GDP growth for the year to March.

• Growth is also starting to be seen in our major trading partners albeit on the back of very “accommodating” economic policy.

• Higher commodity prices, strong construction sector activity and rapid immigration over the last 18 months have contributed to strong housing and consumer demand.  Consumer and business confidence remains high.

• They noted that the exchange rate continues to be a negative element for the exporting sector and do not feel that current levels are sustainable.

• While there has been some moderation of the housing market on the back of higher LVR requirements, strong immigration has offset that to a degree.

• While headline inflation has been modest, inflationary pressures are building and interest rates will have to increase over time to a level where they add less to demand.

Comment

The announced increase in the OCR was not unexpected of course but as always the commentary that goes along with it is probably of more interest.  That too was largely predicted this morning and confirms that while there are real inflationary risks in the economy they are still well under control and so any future OCR increases should be contained and occur over a relatively long period of time – say the next two years.

If nothing else the strength of the exchange rate will moderate their actions to some degree.

Lenders have had this increase built in to their interest rate structure for some time as it was so well sign posted for so long.  The next increase will be a result of future speculation as to when the RB will act again.

I continue to advocate strongly that borrowers should not be panicked into locking in high longer term interest rates and should simply ride up with the increases over the longer term.

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%

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.