The Reserve Bank kept the Official Cash Rate (OCR) at 2.25 percent.
Photo: RNZ
Wholesale interest rates have softened a little since the Reserve Bank’s Wednesday update, but there is unlikely to be any relief for home loan borrowers.
The Reserve Bank kept the Official Cash Rate (OCR) at 2.25 percent but updated its forecast for the future path of interest rates. It now expects rates to lift a little higher and earlier than previously, but not as early as the market had been pricing in.
The five-year swap rate has now dropped from a high of 3.8 percent at the start of this month to 3.52 percent.
The three-year rate has dropped from 3.45 percent to 3.19 percent over the same period.
Two- and one-year swap rates have also fallen.
Simplicity chief economist Shamubeel Eaqub said it could mean a minor drop in home loan rates.
The main banks have all put up their longer-term rates in recent weeks.
But Brad Olsen, Infometrics chief executive, was not convinced that rates would fall.
He said it was notable that the Reserve Bank had tried to dampen down the market excitement at the end of last year, when attention quickly turned from how far the OCR would fall to when it would rise again, and many retail rates lifted.
“I don’t think any of the banks are going to come out and reverse the increase to interest rates that they’ve put through in the last couple of weeks. It probably just delays whenever the next changes might come through.
“The long-term rates have lifted. I don’t think you’re going to see much in the way of changed six-month rates. And even if you do, who’s going on a six-month rate at the moment? In the most recent lending data, there was a huge pivot away from floating and six-month rates and a much bigger increase in the number going longer. It’s still probably a question of when you see further increase in retail rates and what magnitude?”
He said the economy was in an uncomfortable position with a lot of changes happening at once.
“Interest rate changes last year that are still to fully hit the economy. You’ve got weaker recent economic trends through parts of last year, but then a bit more hot inflationary pressure, hopefully temporarily.
“The Reserve Bank’s still got a lot riding on expectations that spare capacity in the economy will limit how ready businesses feel to pass on costs and an expectation that with a weak housing market that consumer spending or growth will remain low. The challenge so far is that both of those trends are true and headline inflation is at 3.1 percent.”
Mike Jones, BNZ chief economist, said the Reserve Bank’s messaging set the stage for some consolidation in wholesale and retail interest rates.
“Just how long that pause might last will depend on how the economic numbers fall from here, particularly those around inflation.
“The next move in the OCR is up, and we think in September, so I think we can expect the uptrend to resume at some stage, but the Reserve Bank’s ‘time is on our side’ messaging does buy a bit of extra time on that.
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