Time to fix?

New Zealand is getting to the stage where it may make sense to fix mortgage rates at one or two years according to BNZ economist Tony Alexander as he previews next week's Official Cash Rate announcement.  

Friday, March 5th 2010, 10:59AM

by Jenha White

"We are getting into a period when one may opportunistically be able to fix one or two years and achieve a lower average cost than sitting floating for those periods," he says.

"But note that we do not expect another opportunity to lock in five or seven-year rates at very low levels until an uncertain number of years from now."

In the BNZ Weekly Overview Alexander also looks forward to next Thursday when the Reserve Bank will release their three monthly updated set of economic forecasts in the Monetary Policy Statement and review the official cash rate which has sat at 2.5% since the end of April last year.

BNZ expects a reiteration of the Reserve Bank's expectation that the cash rate will start rising from the middle of the year and recognition that the economy appears to have lost a wee bit of steam at the turn of the year.

"Most notably with regard to issuance of consents for commercial buildings, housing turnover, housing consents and retail spending in December."

Alexander says the Reserve Bank may also note the way in which current monetary conditions are actually a lot tighter than implied by a 2.5% OCR.

"Bank funding costs are structurally much higher now compared with that rate than in the past due to more aggressive bidding for term deposits in NZ producing rates about 2% above the OCR - not very close to it as in the past."

To look at BNZ's OCR predictions in detail click here.

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