By Janine Ogier
Tuesday 1st November 2005
|Text too small?|
New Zealanders' propensity to borrow and spend caused Reserve Bank governor Alan Bollard to raise the official cash rate 25 basis points on Thursday and more tightening is in store unless Kiwis heed his warning to curb their appetite for loans and goods.
Fixed mortgage rates in the one-, two- and three-year terms jumped up with lenders announcing increases numbering well into the 20s. Floating rates also moved higher.
Bollard said the tightening was expected to slow the housing market and household spending over the coming months. "However, the prospect of further tightening may only be ruled out once a noticeable moderation in housing and consumer spending is observed," he said.
Some market players read the words as signifying evidence was required to prevent further tightening, while others analysed the rhetoric as meaning evidence was needed to switch away from a tightening bias. Either way, mortgage rates have moved higher in response.
But a December cash rate hike is not regarded as a given, yet. "United States rates are drifting up and that means upward pressure on our fixed rates. The proper monetary policy fight has now started here in New Zealand and this will also cause fixed borrowing costs to rise," Bank of New Zealand chief economist Tony Alexander says.
"Up to now the RBNZ have been saying that if strong data appears they will tighten again. Now they are saying they will be tightening again and will only not do so if data appear showing the economy slowing down," he says.
Brendan O'Donovan, chief economist at Westpac, says the RBNZ' sole focus is too reign in a too hot housing market and excessive consumer borrowing and higher interest rates are their medicine.
"Eventually the consumer will buckle under the weight of debt servicing costs. Then lower interest rates will be the order of the day. But in the short term, higher rather than lower rates are in prospect," he says.
In the mortgage market over the week, there were many changes after Thursday's rate announcement.
Variable rates now vary from Silver Fern's 7.85% to NZ Mortgage Trust's 9.5%.
One-year rates now range from the 7.6% offered by Southern Cross to 8.9% from GEM Home Loans. There were 26 rises in this rate.
In the two-year market, Loan Plan's 7.55% is the most attractive rate and the offering vary up to Headstart's 8.75%. Again, it was an active week of increases, with 29 lenders raising their rate for this term.
Three-year rates range from the 7.55% offered by Loan Plan to Headstart's 8.6% and there were 25 revisions upwards.
At the longer end of the curve, five-year loans now vary from 7.4% offered by Housing Corporation and Loan Plan to Gem Home Loans' 8.4%. Thirteen lenders increased their five-year rates, while Sovereign showed the sole decrease of the week, cutting its five-year rate minutely to 7.64% from 7.65%.
No comments yet