Interest rate predictions divide pundits

Interest rates are likely to stay low for many years and may fall further, according to expert who believes prices will double again over the next few years.

Thursday, November 8th 2012, 12:00AM

by The Landlord

Westpac chief economist Dominick Stephens said this week that the current historic lows for interest rates were unsustainable.

The bank has released its quarterly economic overview report.

In it, Stephens writes that Westpac’s prediction is for 90-day interest rates to rise much faster than either the Reserve Bank or the market expects.

It picks the first move in interest rates to happen in June 2013, when it says the OCR will still be at 2.5%.

By 2014, Westpac expects 90-day rates to be 4%. By comparison, the RBNZ tips them to have barely moved at 2.75% and the swaps market implied pricing puts them even lower, at just over 2.5%.

By 2015, Westpac expects rates to be over 5%.

But property investor Olly Newland said the low rates were the new normal.

“Never in my lifetime have I seen interest rates so low as now, but I am reassured by the fact that the current rates are in line with the rest of the world. Unless massive inflation appears, there is no reason why rates should ever go up significantly.

He said low interest rates were pushing up prices around New Zealand, particularly in Auckland.

“The side-effect of low interest rates is that savers are tempted to put their money into other avenues of investment, with investment property being one of their options. In my view, the merry dance will continue. House prices are likely going to double again over the next few years. Of that I am certain.”

He said the only people affected were those who did not own property. He said they were a small minority who wielded a lot of political clout.

‘Don’t forget: that ‘struggle’ to get one’s first house has always been so. It was much worse when I was a first home buyer, (cue: violins) but these days generation Yers seem to want to start where their parents ended up.”

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