Higher floating rates now a possibility

Not only has the prospect of lower floating rates receded well into 2006, but now the market is beginning to suggest further tightening.

Tuesday, September 27th 2005, 6:48AM

by Janine Ogier

The wholesale interest rate market is pricing in increased expectations of further tightening by the Reserve Bank of New Zealand, putting higher floating mortgage rates on the agenda.

Since the monetary policy statement earlier this month, the 90-day bank bill strip has been heavily traded and the probability of more official cash rate hikes is around 35% for October and 25% for December.

While growth data for the second quarter will be released on Thursday, it’s inflation information which will be eagerly awaited by the markets in the next few weeks.

“Any sign that recent inflation (oil price) shocks are feeding through into pricing expectations or pricing behaviour has the potential to force the Reserve Bank’s hand,” ANZ economists said.

In mortgage news last week, there were quite a few changes, mostly with shorter rates heading higher. One-year rates now range from the 7.60% offered by Public Trust and Southern Cross to 8.40% from GEM Home Loans.

Lenders announcing increases in this part of the market in the last week were ANZ, Asteron, National Bank, NZ Mortgage Funds and ASB.

Kiwibank cut its one-year rate to 7.80%.

In the middle of the curve, three-year rates range from BankDirect’s 7.25% to Headstart’s 8.55%. Kiwibank, Asteron, NZ Mortgage Funds, and Headstart raised this rate last week. While TSB cut its three-year rate to 7.50% from 7.60%.

At the long end, five-year rates range from Kiwibank’s 7.15%, down from 7.25% last week, to GEM Home Loans’ 8.00%.

The other change in the five-year rates was an increase from NZ Mortgage Fund to 7.75%.

In other news, Headstart added two- and three-year fixed rates to its offerings.

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