by Sally Lindsay
“It’s not a one-way street to lower mortgage rates, Nick Tuffley, ASB chief economist says.
He says the bank’s view is the RBNZ is more than half-way through its easing cycle and economic conditions suggest that mortgage interest rates will settle in a higher range than the recent (and historic) lows struck during Covid-19.
The OCR offshore interest rates and bank funding costs are key influences on mortgage interest rates.
However, different mortgage interest rate terms tend to be impacted to varying degrees by developments both here and abroad.
ASB has highlighted what boosts the outlook for shorter- and longer-term mortgage rates:
Shorter-term mortgage rates (floating or fixed up to about one-year):
Longer-term mortgage rates (fixing beyond one year):
Tuffley says interest rate certainty, has historically carried a higher rate, but that’s not the case now and the longer terms carry the lowest interest rates.
“Ultimately, it is a trade-off between the cost of the mortgage rate, interest rate certainty for a longer period, vs. the flexibility of the shorter terms and the potential for rates to ease over the years ahead.
“Mortgage rates could dip lower than we expect, due to anything from RBNZ actions through to renewed threats to the economic outlook.”
However, he says rates could also hold up for longer than expected if inflation does not continue to cool as ASB is forecasting.
Impact on the economy
Meanwhile, the impact of lower interest rates on the economy will not kick in for one to two years, Westpac’s economists say in their latest commentary.
While lower interest rates are sparking some more optimism among businesses and households, it will be the second half of next year before there are some robust economic growth figures, but they are on their way.
Using its new GDP Tracker, the bank says after last week’s data, the nowcast for the December quarter stands at +0.1% – a small positive, though still not matching population growth.
It is now more confident the September quarter will mark the end of the economy’s downturn.
The economics team says more recent data has been improving, although there is a clear tug-of-war between the strong rise in forward-looking confidence measures, and the more mixed measures of past activity.
September quarter’s GDP figures will be released on Thursday and the bank says there is more uncertainty than usual around them in terms of both the outcome and the broader interpretation of the data.
The September quarter includes the annual benchmarking exercise, where the quarterly figures are aligned with more detailed (but less timely) annual statistics.
Stats NZ has signaled that this year’s exercise will result in substantial upward revisions to GDP – in the order of 2% additional growth over the past two years.
The revised figures tell a more plausible story about the economy’s recent performance – the declines in per-capita GDP and labour productivity, while still large, have not been as severe as previously thought.
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