OCR Rises to 2.75% but borrowers shouldn't panic

Interest Rates

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

Floating                     5.59%

6 months                    5.20%

12 months                  5.35%

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.