Interest rate predictions for 2013
We ask economists for their predictions on when interest rates will start raising and to what level they will reach.
Friday, December 21st 2012, 1:15PM
by Susan Edmunds
Economists predict the official cash rate (OCR) will begin to rise as soon as next June, according to a survey by www.mortgagerates.co.nz.
Reserve Bank Governor Graeme Wheeler indicated at the most recent OCR announcement that he expected to keep the rate on hold until 2014. All but two of the seven economists surveyed expected the rate to have risen by next December.
UBS expects the first 25 basis point shift in June next year, JP Morgan and HSBC expect it in December, and BNZ and HSBC think it is likely to come in December.
Craig Ebert, of BNZ, said the bank had been picking that date for some time. He said BNZ was taking a firmer view of inflation over the medium term than the Reserve Bank.
By March 2014, all but one expect the OCR to be at least 3%.
Infometrics expects that the OCR will have reached 5.75% by December 2015, while GNZ expects it to reach 3.25% in September 2014 and stay at that level for the next year and a half.
BNZ says the rate will have reached 3.25% by March 2014, and will rise to 4.5% by December 2015.
UBS is picking the rate to reach 3.% by next March and stay there for at least a year.
Floating rate predictions
Floating rates will have risen to 8.6% in three years, one economist is predicting. Gareth Kiernan, of Infometrics, thinks floating rates will stay constant at 5.9% all next year but start rising next December. From then, the rise will be sharp, reaching 7.5% by the end of 2014 and then 8.6% by 2015.
He said by that point the global uncertainty should be diminishing and economic growth picking up. “It’s a case of starting to return monetary conditions to something more normal. Interest rates are unusually low and won’t continue forever.”
Paul Bloxham, of HSBC, predicts a more gradual increase, with floating rates inching up over 2013 and 2014, to reach 6.9% by December 2015.
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Westpac predicting rates to rise faster than forecast
In its recently released quarterly economic overview report, Stephens writes that Westpac’s prediction is for 90-day interest rates to rise much faster than either the Reserve Bank or the market expects.
It picks the first move in interest rates to happen in June 2013, when it says the OCR will still be at 2.50%.
By 2014, Westpac expects 90-day rates to be 4%. By comparison, the RBNZ tips them to have barely moved at 2.75% and the swaps market implied pricing puts them even lower, at just over 2.50%.
By 2015, Westpac expects rates to be over 5%.
Stephens’ report said that the Christchurch rebuild would make it hard for New Zealand to avoid substantial inflation.
“The inflation figures suggest that central co-ordination of small to moderate repairs – the bulk of the activity to date – has been effective in limiting construction cost inflation. This is unlikely to remain the case as major repairs and rebuilds take over as the main form of activity.”
He pointed to the fact that new housing in the Canterbury region has already risen roughly 10% over the past year.
Stephens said he expected home loan rates to follow the same trajectory as 90-day rates. They might stay on hold for another year or so but then would have to rise.
“Floating rates may not rise quite as rapidly as 90-day rates because at the moment banks have to pay a higher margin to procure funds from overseas. That pressure might come off.”
But he said it was unrealistic to expect the current historic lows to continue past 2013.