Low floating rates not getting much response

Low floating mortgage rates have not produced a surge in borrowing says BNZ economist Tony Alexander.    

Friday, February 26th 2010, 4:25PM

by Jenha White

In the BNZ Weekly Overview he says if we were to see a surge in retail spending we would expect by now to be seeing a lift in credit demand. But we are not.

He also believes the Reserve Bank will feel justified in continuing their indication of tightening monetary policy in the middle of the year with the net percent of businesses planning to raise their selling prices rising to 26% from 18% in December.

"This is the highest result since September 2008 just before the Lehman's investment bank collapse. And even though the actual inflation rate is 2% with a 0.2% fall in consumer prices over the December quarter, year ahead inflation expectations are at 2.56%."

Alexander also acknowledges that most of the economic releases recently in New Zealand have been on the not so good side, so it was pleasing today to see something surprising on the strong side - even if it is only attitudes and not actual spending measures.

The monthly NBNZ Business Outlook survey showed that business confidence about the economy over the coming year has jumped in February to a decade high of a net 50% positive from the last survey in December where the reading was +39%. A year ago this measure was -41%.

In borrowing advice he says there is little to be gained at this point from abandoning the floating rate and opting for a fixed rate.

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