Floating mortgage rate rise remote

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The chances floating mortgage rates will rise this year just became more remote as Reserve Bank governor Alan Bollard held his official cash rate (OCR) steady.

Thursday, March 8th 2012, 12:34PM

by Jenny Ruth

"Certainly, the OCR looks to be on hold for most of this year," says Doug Steel, an economist at Bank of New Zealand.

As unanimously expected, Bollard kept the OCR at its 2.5% record low and said if the currency remains so high, inhibiting economic growth, there will be less need for future OCR increases.

"The Reserve Bank doesn't like where the currency is. It's a drag on exporters' incomes and one of the major reasons, if not the major reason, for the lower interest rate track," Steel says.

The central bank now appears to be signalling it will hike the OCR about the end of the year, further out than last December when it was indicating the OCR might rise somewhere in the second or third quarters, he says.

Peter Cavanaugh at Bancorp Treasury Services says while the currency fell about a quarter of a US cent after Bollard's statement, "in the context of recent movements, that's noise - if the currency doesn't go down, they've (the central bank) absolutely no cause to move the OCR."

Robin Clements at UBS New Zealand says the Reserve Bank is still forecasting the exchange rate will decline but he isn't so sure.

"We think that's going to be a hard ask. Our thinking is that the exchange rate is going to be sticky," Clements says.

The Reserve Bank's forecasts now have the OCR peaking at about 3.6% by about March 2015, down from its 4% prediction in its December monetary policy statement.

Certainly, Bollard doesn't currently see much threat to containing inflation coming for the housing market, although the statement acknowledged recent modest improvements in sales volumes and consents to build new houses.

"High household debt is expected to hold back spending as households attempt to reduce debt," the statement says.

"Weak credit growth, which has been well below that implied by turnover in the housing market, gives weight to this assumption," it says.

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