Lower rates still likely

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Which way are mortgage interest rates heading? We summarise what's been happening and round up the latest predictions.

Thursday, March 22nd 2001, 11:14AM

by Paul McBeth

Which way are mortgage interest rates heading? We summarise what's been happening and round up the latest predictions.

 

• As we reported, the Reserve Bank chopped the Official Cash Rate last week by 0.25 percentage points to 6.25 per cent.

• That's prompted a range of cuts, mainly to floating and short-term fixed rate mortgages. Here's what's been happening over recent weeks (rates for the four big banks for ease of comparison

 

Date	Floating rate	One year fixed	Three year	Five year
Today	8.25 %	6.85-6.99%	7.1-7.3%	7.4-7.5%
Two weeks ago	8.50%*	6.99%	7.3-7.5%	7.5-7.75%
Six weeks ago	8.50%*	6.99-7.25%	7.3%	7.5%

 

*except for WestpacTrust, which took a stand on 8.25%

 

• BNZ economists say the market's now looking towards another OCR cut of 0.5 per cent, probably at the May 16 review. The bank's latest weekly review says that "if things pan out internationally as we think they will", monetary policy will be tightened again over 2002.

• They also say the risk/reward trade-off has moved in favour of average, risk-averse borrowers fixing rates for two or three years.

• Meanwhile, ASB Bank's tipping a 0.75 per cent cut in the OCR over the next four or five months. However, beyond that, they say there's likely to be a sharper focus on inflation (both here and overseas), so again, monetary policy tightening.

• What does that mean for mortgage rates? Well, floating and short-term fixed rates (usually one to three years fixed) follow the OCR, so some reductions still possible before monetary policy cranks up again later this year.

• Longer-term rates (say the five-year fixed rates) are likely to ease too, but not for long. ASB Bank says the most likely scenario is for these longer rates to match US bond moves, which probably means trending downward over the next few weeks.

 

Paul is a staff writer for Good Returns based in Wellington.

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