Fixed rates to fall further: Westpac

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Retail fixed interest rates will fall even further this year as the central bank considers "aggressive" cuts, according to Westpac.

Thursday, July 25th 2019, 9:57AM 1 Comment

Dominick Stephens

Westpac economists have changed their Official Cash Rate prediction, and now say the Reserve Bank will cut the OCR in August and November.

The big-four bank, joins a growing chorus of lenders, including ASB and ANZ, to predict at least two more rate cuts this year, .

Westpac chief economist Dominick Stephens, say the “domestic economy has clearly slowed further than anticipated”, and the slowdown will prompt the RBNZ to take drastic action.

He says lower business confidence, a recent rise in the exchange rate, and global economic woes will influence the central bank’s thinking.

The economists said the expected pickup in 2019 has failed to materialise.

“We previously expected that the economy would be picking up by mid-2019, on the back of fiscal stimulus and lower interest rates. Instead, recent data suggests that New Zealand economic growth has remained slow.”

The bank believes there is a possibility that the RBNZ could make three more cuts this year.

“The risk to our new call is skewed towards earlier or more aggressive cuts – there is a possibility that the RBNZ could cut the OCR in September, and even a possibility that the OCR could drop below 1%.”

Westpac believes deep rate cuts will boost house price inflation over the next year, with increases of 2% to 7%.

The economists added: “Recent data supports our view. Over the past two months, we estimate that seasonally adjusted housing market turnover has risen 10%. Brisker house sales are a reliable sign of price rises to come.”

The bank predicts the ongoing “search for yield” will see investors return to a “slower-moving” housing market over the next year.

Tags: OCR OCR forecasts Westpac

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