Strong US economy pushes up wholesale rates, but mortgage rates unchanged

Strong US economy pushes up wholesale rates, but mortgage rates unchanged

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For this week’s update it’s all about interest rates.

The last week has seen New Zealand wholesale rates — which are a big driver of bank mortgage rates — increase slightly

That’s largely thanks to some really strong economic data that’s come out of the US in recent days, with employment figures for May showing high levels of job growth and GDP continuing to expand as well.

It’s a clear sign that the States still has some way to go in its battle to get inflation under control. As a result, the market is increasingly expecting the Federal Reserve to hold off until 2025 before delivering any rate cuts.

In other parts of the world, it’s a different story. Both the European Central Bank (in the EU) and Canadian Central Bank have started to drop interest rates in recent weeks — marking the start of the gradual process of easing monetary policy.

In New Zealand, economic data continues to paint a pretty bleak picture

Although the Reserve Bank (RBNZ) is still insisting we won’t be getting any interest rate relief until late 2025, the markets are now largely anticipating it will happen sometime within the next six to nine months.

New Zealand’s September inflation update will be a critical moment. Many economists are expecting that annualised inflation will (by that point) have fallen below 3%, bringing it back within the RBNZ’s target range of 1-3%.

If that’s the case, interest rates could start to come down again from November, with the final Official Cash Rate (OCR) announcement of 2024 due to happen on Wednesday 27th November.

The recommendation for anyone fixing (or refixing) right now is to opt short-term, and lock in for six months to a year

The best one-year rate in market at the moment is still that same 6.85% that’s been around for the last few weeks. This will almost certainly get you through this current period of uncertainty, and through to a point where interest rates have started to come down again.

For a six-month term, the leading rate right now is sitting at 6.89%. If you’re willing to take on a little more risk — for a chance at being able to take advantage of lower mortgage rates as soon as they start to come down — then six months could be the way to go.

Check in next week for another update on what’s happening in the world of New Zealand’s interest rates.

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