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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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Comments from our readers

On 21 December 2012 at 2:39 pm Jeff Royle said:
I too think that rates will remain pretty stable until 2014 when the OCR will start a gradual rise. Two and three year money at present is cheap so I'd recommend fixing most of the mortgage and floating a part and overpaying to reduce the capital whilst rates are down.
On 21 December 2012 at 6:04 pm Amused said:
Jeff is right about overpaying to reduce your debt whilst interest rates are cheap but fixing for 2-3 years now in the current interest rate cycle is unwise. The banks would all love you to commit to a fixed rate (given how busy they are poaching one another's customers) but the savvy borrower is wisely remaining on floating leaving their options open. If you can get 5% p.a. or close to it floating why would you commit yourself to a fixed rate now when rates are so stable and likely to be so for sometime yet? The trouble is most kiwis simply don't know there is plenty of wiggle room for the banks to heavily discount their floating rates so they naturally gravitate to the cheapest rates been advertised which are fixed.
On 8 January 2013 at 12:52 am sean lee said:
Interest rates will stay low. If they increase rates now, it will definitely kill all the bond leveraging and how is that gonna help the markets? You think Bernanke is gonna increase interest rates now when there is a fiscal cliff, US Iran issue, European debt crisis? Come on. Inflation rate is now 1.8, not yet 2.5. Unemployment is now 7.7 not yet 6.5. The critics are just playing sentiments. Hedge funds are making a wrong forecast. There wont be an interest rate increase. There wont be an increase in yield. Stopping QE is a good thing for interest rates because it keeps inflation in check and with inflation in check, interest rates wont rise. Instead of stopping people from bond leveraging and worrying about all these interest rate problems, diversify! into bond, oil, gold, hedge funds. Equities and rites are too high now. Its already the 4th year into the Elliot wave cycle. Remember bonds are one level above fixed deposits, there is nothing that can replace fixed income from its category.
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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.

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Disclaimer: Every possible effort has been made to keep the information in the rates tables as accurate as possible, however, neither the publishers of Mortgage Rates nor anyone engaged to compile these tables accept any liability for inaccuracies or any loss suffered as a result. It is strongly advised that readers check loan details directly with the provider concerned.

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