By Janine Ogier
Tuesday 29th November 2005
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But dire predictions for the economy in coming months have quelled a bit of the talk of more tightening in January.
Fixed home loan rates edged on upwards in the last week and when the expected central bank tightening occurs on December 8, floating rates will join the action again.
The National Bank business survey showed one-year ahead inflation expectations rose at the same time as firms' activity expectations slipped to zero, underlining the pessimistic business confidence outcome.
ANZ Bank economists said the economy might contract in the fourth quarter of this year or the first quarter of 2006, but the Reserve Bank would still act next month against inflation, especially against a background of a tight labour market.
"However, we believe the degree of economic weakness and higher effective mortgage rates reduce the prospects for a further move in January," they said.
Deutsche Bank senior economist Darren Gibbs believes the additional weakness shown in the survey's real economy indicators was likely driven by the October rate hike and RBNZ Governor Alan Bollard's public statements lambasting New Zealanders' borrow to spend attitude.
The survey suggested the RBNZ would be successful in slowing the domestic economy if it validated the expectations of higher interest rates that are now embedded in household, business and market expectations, Gibbs said.
In a post-election briefing to the Government, Bollard reiterated comments about the danger to the economy presented by New Zealanders' attitude to debt and a lack of savings, which was analysed as being another blatant hint of a December cash rate hike.
Fixed home loans moved further up over the week as lenders tinkered, but floating rates were stable. One-year rates now range from the 7.60% offered by Southern Cross to 9.10% from GEM Home Loans. Fifteen lenders surveyed by www.goodreturns.co.nz raised their rates.
For two-year fixed terms, Housing Corp. sets the lowest rate at 8.00% and Headstart's 8.95% marks the top. This narrow band of rates is centred around the 8.25% and 8.30% level where the major banks sit.
There were 16 upward changes from lenders in the two-year market.
Three-year rates vary from the 7.95% offered by PSIS and Housing Corp to Headstart and Westpac's capped rate of 8.85%. Again, there were 16 revisions upwards.
The number of lenders moving higher in the five-year fixed terms could be counted on two hands for the first time in a while - nine increased rates. The 7.70% offered by Housing Corporation and Kiwibank is still the low mark, while GEM Home Loans' 8.60% is the highest.