Floating mortgage rates unlikely to rise for several months

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Floating mortgage rates are unlikely to rise for several months after Reserve Bank governor Alan Bollard confirmed market expectations by leaving interest rates unchanged.  

Thursday, October 28th 2010, 10:02AM

by Jenny Ruth

Bollard left his official cash rate (OCR) unchanged at 3% and his statement had little impact on wholesale interest rate pricing which indicates the next upward move in the OCR will be March next year at the earliest.

Bollard acknowledged recent weaker than expected data and muted housing market activity and consumer spending but says the medium term outlook remains broadly in line with the central bank's September forecasts.

"They've tried to play it with a straight bat. They've constructed the language to elicit no movement in market pricing," says Brendan O'Donovan, chief economist at Westpac.

"They're effectively discounting the recent data and telling the market you've priced it in, let's not take it any further."
Bollard did say "it remains likely that further removal of monetary policy support will be required at some stage."

Robin Clements at UBS New Zealand agrees Bollard doesn't want to rock the boat and the only part of the statement which is open-ended is what constitutes "at some stage."

Darren Gibbs at Deutsche Bank says while New Zealand and most major economies have experienced a weak patch through the September quarter, the latest business confidence surveys here and offshore suggest we may have reached a turning point.

Yesterday's survey showed New Zealand business confidence bounced back from a 15-month low. "I don't see any reason why the Reserve Bank should become more negative about the outlook," Gibbs says.

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