Banks likely to keep pushing floating rates

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Last week’s Budget was stimulatory for the economy however that hasn’t encouraged economists to change their forecasts for interest rates, but it may impact on lending policies.

Thursday, May 27th 2010, 1:49PM

Six economists spoken to by www.mortgagerates.co.nz all said the Budget has not changed their interest rate forecasts, nor their forecasts for the official cash rate.

"The budget has removed the uncertainty around what it might contain for the property market," BNZ economist Doug Steel says.

" The actual changes may have been less onerous that what could have been.  So, although the budget was probably negative for property compared to the status quo, it might well be seen as a net positive relative to those forecasts."

Meanwhile Infometrics managing director Gareth Kiernan says "given that the tax changes were not quite fiscally neutral, but instead slightly stimulatory, the Budget made us more confident about our relatively hawkish OCR forecasts."

He is predicting the OCR will rise soon and higher than other economists.

While the Budget may not impact interest rates it may effect bank lending policies.

Bancorp Treasury director Earl White says banks may tighten up criteria around investment properties due to potential price pressures.

"We believe that track for OCR may be a bit less than market is expecting although this is probably more due to potential negative impact on growth of problems in Europe and China trying to slow inflation and avoid a potential housing bubble. 

"Overall I think banks will continue to promote floating rate mortgages to help their balance sheet management and see floating rate mortgages staying well under 7% through this cycle."

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