In ASB’s latest Home loan Rate report by economist Kim Mundy, the bank expects interest rates to continue to rise, but the Reserve Bank to hold the cash rate until late 2018.
With New Zealand interest rates generally moved around by a combination of the official cash rate, offshore interest rates and banks’ funding environments, the report stated, “combined with bank funding pressures, mortgage rates have lifted across the curve.
“While the OCR has remained at a record low, offshore interest rates (especially in the US) have lifted by more than we expected,” said Mundy, in the report.
“At the same time, deposit growth has slowed relative to lending growth. As a result, not only are banks competing to attract and retain deposits (putting a floor under interest rates), banks are having to finance this funding gap in relatively more expensive offshore markets. Despite this, mortgage rates remain low relative to historical averages and current “specials” are even lower for most term rates.
“We expect the RBNZ to leave the OCR on hold until late 2018. As the OCR is one factor influencing floating and shorter-term fixed mortgage rates, we are not likely to see the floating mortgage rate and short-term fixed rates decline any further this year. Further, higher funding costs and increasing global interest rates could see further (but modest) upward pressure on shorter-term interest rates.”
Mundy explained New Zealanders can expect to see rises particularly among longer-term mortgage rates, which are more heavily influenced by offshore developments, particularly in the US.
“US interest rates responded strongly to Donald Trump’s proposed policies and have risen sharply in the months following his election to the US Presidency.
This has flowed through to New Zealand long-term interest rates. We expect US rates to remain elevated, and as a result, expect to see further upward movement over time in NZ’s 3- to 5-year fixed mortgage rates.”