Borrowers should treat carefully any forecasts of large interest rate swings next year, according to BNZ Chief Economist Tony Alexander.
Alexander says the weight of evidence is firmly in favour of the Reserve Bank keeping rates steady over the next six months. However, he says there's a slight change they could cut rates towards the middle of 2001, assuming that:
Writing in the November New Zealand Observer, Alexander says there's considerable uncertainty in the market and, given the queries over the outlook for inflation and interest rates, he would be unwilling to sit on a floating mortgage rate.
His advice for home buyers this month (assuming you won't be repaying within seven years and you're not worried about early repayment fees if you come into some money) is to fix for either one or two years. "As stated many times previously, fixed rates of three years and beyond are well above their cyclical lows so I would not be getting into them."
In broader economic terms, he's picking "weakish but not recessionary" domestic economic activity through to mid 2001, followed by a rise. However, he says the RB will be in two minds about what to do with monetary policy given the uncertainty over the effects of higher inflation as well as the timing and strength of the export rise induced by the low exchange rate.