Chances of OCR cut not high: Alexander

The odds of a further OCR cut in 2020 are "not high", according to economist Tony Alexander, who believes borrowers should not put all of their focus on "chasing the lowest short-term rate".

Thursday, December 19th 2019, 5:49PM

Alexander, the keynote speaker at this year's TMM Better Business Conference, believes improving business and consumer confidence, alongside the planned fiscal stimulus, could stave off another rate cut.

He joins economists from Westpac and Kiwibank in expressing growing doubts over another cut this week.

"The world outlook is slowly improving," he added, in his latest weekly update. "Global sentiment among central bankers has turned against believing that additional rate cuts from historically low levels will do much good with regard to stimulating either growth or inflation. In fact, cuts might do the opposite."

Alexander questions whether borrowers "might want to spend a bit more time perusing mid to long-term fixed rates on offer, rather than just chasing the lowest short-term rate".

With rates now less likely to fall, Alexander believes the certainty offered by two-year loans could be the best value option for borrowers.

"If you fix for one-year then you get a nice low rate. But the odds are now against further monetary policy easing, and tightening will eventually become more likely than any easing and interest rates will reflect this," he added.

Alexander said the "rate certainty" offered by two-year loans looks like good value when compared to one-year rates in the current market.

"Chances are in one year the one-year rate will be close to 3.51%, so if fixing two years was my preference, I’d be inclined toward that term instead of [today's one-year rate of] 3.39%, as the cost of rate certainty looks quite cheap."

Alexander says banks are raising their fixed lending rates "bit by bit". He added: "Chances are we've seen the lows and for that reason long-term rates should not be casually dismissed as expensive."

Tags: OCR OCR forecasts Tony Alexander