Fixed rates still appeal
for the sovereign rates newsletter
Thursday, October 7th 2004, 10:40AM
Fixed rates still appeal
Interest rates rarely remain still for long but stable interest rates over 2005 is the key inference of the latest RBNZ projections for the economy.
The RBNZ acknowledge the tightness of the economy at present and the probable inflation threat over the next 12 months; they also point to the lagged dampening impact to come of higher interest rates and exchange rates over 2004.
The OCR remains at 6.5% and is projected to do likewise throughout 2005. The risks, according to the RBNZ, are biased towards higher-than-expected rates, largely due to the growth momentum that has not yet slowed and the low unemployment rate.
The market sees it differently: futures pricing suggest a strong chance of a rate cut in mid 2005, in part due to the still-upward NZ dollar trend.
For borrowers, the high inflation rate in the RBNZ’s projections is good reason to be wary of the possibility of one or two rate hikes and hence fixed rates still appeal.
However, the overall Money Policy Statement confirms that interest rate rises in this cycle should prove moderate so expensive long-term fixed rates should not be required (subject of course to individual’s risk tolerance). In sum, 1-2 year fixed rates remain attractive, with or without the discount of late.
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