The Official Cash Rate, a key influence on floating and short-term fixed mortgage rates, is up for review again shortly with the arguments tending in favour of no increase.
The OCR review coincides with the release of the August Monetary Policy Statement next Wednesday. Here's a round-up of what people are saying about the OCR along with some predictions for mortgage rates.
WestpacTrust: the Reserve Bank probably has some breathing space to hold off lifting the OCR (but economists were cautious on their predictions until the latest building figures had come in). "However, rate hike or not, expect the tone of the August Monetary Policy Statement to be hawkish and keep in place expectations of further rate hikes."
Deutsche Bank (Ulf Schoefisch, Chief Economist): retail sales figures released on Monday suggest that domestic demand has been holding up relatively well. "Looking towards next week's Monetary Policy Statement, this data provides support for the view that the economy has retained some underlying strength, with good growth fundamentals going forward. Considering the forthcoming rise in inflation to three per cent and potential second-round effects, we continue to believe that the RB will raise rates by 25 basis points on 16 August, although the probabilities are close to 50:50."
Bank of New Zealand (Tony Alexander, Chief Economist): floating interest rates will probably sit about two per cent lower in future than during the late 1990s "which is very good for business expansion.Another related positive is far greater stability in interest rates than in the past."
"With regard to interest rates over the short term, we think the Reserve Bank will leave the official cash rate unchanged from 6.5 per cent on August 16, and suggest they don't make any move until December when export sector strength spreading into the rest of the economy may justify another nudge of the monetary brake."
Alexander expects the OCR to peak at 7.0 per cent before mid-2001, hold steady and then edge lower over 2002. "While higher rates may sound negative for the economy, one must remember that we are picking a peak in bill yields this cycle of just 7.3 per cent compared with near 10.0 per cent in 1994, 1996 and again in 1998."
__Forsyth Barr Mortgage Services:__the outlook for mortgage rates (based on their predictions for underlying bank bill or government stock rates) is floating rates rising to around 9 per cent over the next few months, holding at that level until early 2001 and then easing to 8.25 per cent by mid 2001.
Two-year fixed rates will edge up, reversing the recent declines, to peak around 8.75 per cent. However, they expect these rates to be about 8.25 per cent by mid next year.
And three- year rates? Forsyth Barr thinks they've already peaked, will stay much the same until early next year and then fall to around 8.25 per cent by mid 2001.
OCR reviews this year
| Review date | OCR | | --------------- | --------------------------------------- | | January 19 2000 | 5.25 per cent (previously 5.0 per cent) | | March 15 | 5.75 per cent | | April 19 | 6.0 per cent | | May 17 | 6.5 per cent | | July 5 | No change | | August 16 | | | October 4 | | | December 6 | |
