If you like certainty, fix.

Borrowers could still toss a coin between floating or fixing, however BNZ economist Tony Alexander says he likes certainty, so if pressed he would probably fix two years knowing nothing he could do would stop him being hit at some stage by high floating and later, slightly higher fixed rates.  

Friday, June 4th 2010, 11:37AM

The June 10 official cash rate review is rapidly approaching and a rise is increasingly expected by Alexander and also by the markets due to some of the recent data coming in quite strong.

In addition, with sharemarkets rallying overnight some of the Europe-related concerns have

eased back a tad - as they have done temporarily many times in the past couple of months.

In the BNZ Weekly Overview Alexander says BNZ sees a strong chance that the Reserve Bank raises the official cash rate 0.25% next week to 2.75% and signal further rises in response to growth in the economy actually looking a tad stronger than it assumed.

"But it will note the troubles in Europe and how they are worth keeping a very close eye on and the restraining effect on credit conditions of the recent mild tightening up again of funding for banks offshore."

He says the OCR might not be increased if war breaks out on the Korean Peninsula, if the recent Middle East events boil over into a new local war, if the Euro collapses along with sharemarkets, or if the Reserve Bank simply feels it has time on its hands and can wait.

"We don't believe they do because it is really only by assuming one or other of these truly nasty things happens that one can justify holding off in the face of the recent string of good data releases," says Alexander.

Fonterra has indicated a record dairy payout is possible this season. Residential dwelling consents recovered reasonably well in April. Good data keeps coming out of the United States. Export commodity prices on average keep rising. The Budget was slightly stimulatory and the housing tax changes less bad than many feared. We also learnt this week in the NBNZ Business Outlook Survey that businesses are feeling very happy and plan acting on their happiness by hiring people and investing.

Alexander says the survey results give the green light to the Reserve Bank to start taking away the unnecessary 2.5% cash rate from next Thursday morning.

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