Heavy breathing from the Reserve Bank today means it's even more likely that floating mortgage rates will start rising again before the end of the year.
The Bank released its August Monetary Policy Statement this morning and left its key monetary policy tool, the Official Cash Rate, unchanged at 4.5 per cent. That rate is the prime driver for floating mortgage rates, which have remained constant since the OCR was introduced five months ago.
However, in typical Bankspeak, the RB says that a lift in the OCR before the end of the year is now "increasingly likely". Governor Don Brash says this won't come as a surprise to financial markets, which have already been expecting a rise in the OCR during the next three to six months.
Brash says that, since the Bank's May statement, there have been some developments which indicate stronger - and earlier - inflation pressures. The world economy is now looking a lot stronger, with extra growth now expected from our trading partners. Added to that, the New Zealand economy has been growing at about three per cent per annum for the last 12 months and measured inflation is likely to increase significantly over the next year.
However, offsetting those factors and removing any immediate need for the RB to 'hit the brakes', Brash says business and consumer confidence still seem fragile and there are some continued questions about the world economy (including the possibility of a sharp fall in US interest rates).
"As well, long-term interest rates including fixed mortgage rates have already risen quite sharply, which should begin to dampen demand."
