ASB Bank’s economists have forecast rises in interest rates toward the end of this year, ahead of an increase in the official cashrate (OCR) in early 2019.
ASB economist Kim Mundy said in the bank’s Home loan rate report, out on Monday, longer-term interest rates could move higher this year as US interest rates lift.
“Heading into 2017, our expectation had been for slightly higher mortgage rates by year-end. Key to this was expectations of higher offshore (US) interest rates & ongoing bank funding challenges. However… current mortgage rates are close to where they were in January 2017 (and some fixed-terms are even lower than they were then!).
“So what happened? Firstly, bank funding challenges were already exerting pressure on mortgage rates at the end of 2016/early 2017. However, increasing domestic deposit growth rates later in 2017 saw some of these pressures ease.
“Secondly, the lift in US interest rates was less straightforward than we had anticipated. Despite the US Federal Reserve lifting the Fed funds rate 3 times in 2017, interest rates actually softened as concern over the pace of US tax reform progress grew.
“Now as we face 2018 we are, once again, expecting interest rates to lift over the year. US interest rates are expected to continue lifting (particularly now that the US tax bill has passed). US interest rates tend to impact New Zealand’s longer-term interest rates and, as a result, we are likely to see this pressure flow through to the 3-year-plus fixed rates.”
The Reserve Bank cut the official cashrate from 2% to 1.75% in November 2016 and has held it there. ASB’s economists expect the Reserve Bank to raise the official cashrate in February 2019 – “and, as the OCR is one factor influencing floating & shorter-term fixed mortgage rates, there is a risk that New Zealand’s shorter-term interest rates start to lift ahead of any OCR increases.”
Attribution: Bank report.