Pressure mounts to leave rates alone

Calls are intensifying for interest rates to be left alone at the next Official Cash Rate review.

Monday, October 4th 1999, 12:00AM

by Paul McBeth

Calls are intensifying for interest rates to be let alone, with last week's Official Cash Rate review safely past and the countdown underway to the next one.

Economic research firm Berl has now called on the Reserve Bank to backtrack on the rate increase signalled for its next OCR review November 17, WestpacTrust says there's a strong case for holding off rates rises until March and some industry groups are also getting in on the act. However, ANZ Bank economists still believe an increase is likely.

ASB Bank economist Rozanna Wozniak says that the Reserve Bank is now more likely to raise the OCR by 0.25 per cent rather than the 0.5 per cent earlier predicted, or even delay any rise until January.

Wozniak hasn't changed her medium term outlook for interest rates, but says the risk of any imminent rises has been reduced by poor GDP figures (as earlier reported, June quarter GDP dropped 0.3 per cent). As she stated recently in the bank's Quarterly Housing Report, long-term fixed rates have already anticipated future rises so that floating and short-term fixed rates are likely to bear the brunt of any further moves.

"On the economy, yes, things have been soft, but we expect it to regain its footing once the election is out of the way and the international economy picks up."

Mortgage banker Cairns Lockie, in its latest commentary, says there are a number of reasons why interest rates and therefore mortgage rates may not rise:

That bad GDP figure again. We're technically in recession if there's negative economic growth in the third quarter.

Interest rates are fairly responsive to inflation and that's currently low (petrol and council rates are the only two things to get much more expensive lately).

The heavy influence of housing. House price increases have been minimal this year, even though more houses have been sold and there are more new housing starts than in 1998.

Last week's OCR review

Paul is a staff writer for Good Returns based in Wellington.

« OCR unchanged, floating rates stable

"Watchful caution" in property market, says REINZ »

Special Offers