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Expert's Views
Taking a moment to pauseJust as we have seen the Reserve Bank of Australia pause in their tightening cycle after three rate rises, it is certain our own central bank will carefully assess the impact of its rate rises, pausing if the need arises says BNZ economist Tony Alexander.Friday, February 19th 2010, 11:49AMby Jenha White In the BNZ Weekly Overview he confirms that BNZ's expectations remain that the movement of the cash rate away from the 2.5% level will start in June, pushing the rate close to 6% by early 2012. Alexander also says BNZ's central view regarding what to do as a borrower has not changed for a long time and probably won't until just before the Reserve Bank starts raising the cash rate in June. He says for the majority of borrowers the time to fix medium to long term came and went last year and now one may as well float. "There are many people still choosing to fix, but usually only for one year or 18 month periods and frankly it is the toss of a coin whether one will do better fixing or floating for those periods." He says BNZ favours floating for now then having a look at fixing for 12 or 18 months just before the Reserve Bank raises the cash rate.
"That way one gets a still low floating mortgage rate between now and perhaps May and saves compared with say fixing one year at 6.25%."
He says BNZ is counting on being able to get a short term fixed rate in May at about current levels - though they could disappear quickly if a string of positive data releases causes the 1-2 year swap rates to jump up then.
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Future interest rate hikes softened
The Reserve Bank has kept the OCR at 2.50% as expected, but had lowered its forecast track for the 90 day bill rate by around 60 basis points (0.6%) to a peak of 4.30% by the end of next year. For borrowers that means floating home loans are not forecast to rise as much as previously forecast. In June the expectation was that the rates would rise 2% in the next 12 months: that figure has now been wound back to 1.4%. MORE » |
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