“Market pricing suggests the next full 25 basis point hike is expected by April 2015.”
The markets are pricing in an OCR of 3.97% by the end of 2015, which is lower than the 4.20% forecast after the June Monetary Policy Statement.
This means that floating home loan rates will stay at current levels until then.
Fixed rates, which are largely determined off is happening in offshore markets, may come down.
The Reserve Bank says falling global bond rates have put downward pressure on longer maturity New Zealand interest rates.
The two-year swap rate has fallen since the previous Monetary Policy Statement six weeks ago and 10-year swap rates are 35 basis points lower.
The central bank notes there has been strong competition for home loans, particularly around the two-year fix point.
Borrowers continue to migrate from floating rate home loans to fixed terms. In April 2012 63% of mortgage holders were on floating rates and that level has fallen to 29.9% in July this year.
There were about $11.3 billion of mortgage flows into the one-to-threee year fixed rate buckets in the three months to July, which is up from only $3.9 billion over the same period a year ago.
The average time to re-price a mortgage has moved from a low of 4.7 months in 2012 to 10.9 months in July.
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