No rise tipped for OCR review tomorrow

Floating mortgage rates could now be struggling to hit double digits in the latest cycle, as the edge goes off rate increases.

Tuesday, July 4th 2000, 12:00AM

by Paul McBeth

Floating mortgage rates could now be struggling to hit double digits in the latest cycle, as the edge goes off rate increases.

Hardly anyone is now expecting the Reserve Bank to raise the Official Cash Rate (a key determinant of floating and short-term fixed mortgage rates) at tomorrow’s review. And while we may not be at the peak (further rises are still tipped for the OCR later this year, all the same), economists are now tending to agree there’s not much heat left in the meantime.

With longer term rates easing on the back of falling US bond rates, we’ve even seen a round of mortgage rate cuts in recent days. WestpacTrust and Cairns Lockie have actually pinned back rates twice over the last fortnight, while a host of other lenders have also had out the pruning shears (see our rates table for details).

Back on the OCR, that’s expected to rise at the official next review date, August 16. It currently stands at 6.5 per cent, with bank floating rates currently 8.75 to 8.8 per cent.

WestpacTrust’s view: the expectation of no rise tomorrow is based on recent poor confidence data and signs that the domestic economy is struggling to respond to our strong export performance. "However, the weak New Zealand dollar continues to pose a significant risk."

The banks’ economic team believes that the RB won’t add more than 50 percentage points in total to the OCR this year, either all in August or half in August and half at the December review. "Either way, the tightening cycle is very close to the end."

BNZ’s recent markets outlook points out that last week’s release of GDP figures showed a sharper than expected slowdown in the March quarter (with a slump in spending), making it very unlikely the RB will rise the OCR right now. "But inflation concerns are likely to prompt another dose of tightening in August."

Meanwhile, ASB Bank economists say that supporting the case for taking a cautious approach to further tightening has been the news of low house sales and flat (at best) house prices. "While the base case scenario is that inflation will be less next year, there does exist a material risk that high rates will re-occur. It is this risk that is expected to prompt one or two further cash rate hikes this year, but the approach is likely to be gradual now… "

The OCR started this year at five per cent and has climbed to 6.5 per cent with rises at every official review. Other OCR reviews this year are scheduled for August 16, October 4 and December 6.

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

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