Home loan rates could be lower

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Home loan rates are low at the moment but could be lower if international markets weren’t so nervous at the moment, an economist says.

Monday, October 15th 2012, 7:53AM 1 Comment

by Philip Macalister

ANZ economist Mark Smith told the NZ Property Investors Federation confederation conference yesterday that although the New Zealand economy was in good shape relative to many other economies international lenders were still nervous and demanding a high risk premium.

He says that the state of the international markets are probably going be more important for New Zealand now that Graeme Wheeler has taken over as governor of the Reserve Bank.

Wheeler comes to the Reserve Bank from a high profile position at the World Bank.

Smith says Wheeler has a better understanding of the international situation than Bollard and that he is likely to take more account of international events than his predecessor.

“There will be a bit of change” in the Reserve Bank manages monetary policy, however, Wheeler is “not going to be a raving hawk.”

Smith says one advantage the central bank has now is that the majority of home loans are on floating rates and therefore changes to interest rates will have an immediate impact, while previously when the bank tried to control the situation borrowers favoured fixed rate home loans/

Smith said the international markets are important as they set the tone for interest rates in New Zealand and any further economic crisis offshore will impact New Zealand.

He said interest rates could be lower in New Zealand than they are. The reason they are not lower is that international markets, where New Zealand borrows from, are demanding a risk premium.

ANZ’s outlook for the official cash rate is that it won’t be going up until March 2014. 

“(Wheeler) is not going to be putting up interest rates anytime soon.”

Smith says there is a 25% chance that the OCR could be cut. The main reason for this would be further deterioration in the state of international markets.

“Cuts can’t be ruled out given the global risk profile.”

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