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Governor quiet, rates rise

Tuesday 22nd November 2005

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Weekly home loan report: Strong quarterly retail trade data bolstered the case for an interest rate hike next month as the financial markets continue to price in such a scenario and mortgages rates kept rising.

Last week there was no haranguing from the central bank governor, Alan Bollard, like we had become used to in previous weeks.

Quarterly retail trade data, however, added to the impression that New Zealanders have no qualms about borrowing to spend. Second-quarter sales were up 2.4%, despite a weak monthly result for September.

With the traditional spend-up for Christmas ahead, Kiwis' credit cards will get an even bigger work-out in coming weeks and that is not going to help the Reserve Bank of New Zealand as it contemplates stamping on the consumer culture again on December 8.

There is nothing on the horizon between now and then that is likely to tip the scales back to a holding position, so prepare for a 25-basis-point tightening next month.

This week the National Bank business outlook survey will detail inflation expectations in the business community.

But a few-cent drop in the petrol price in recent days is unlikely to provide much succour for people if they consider the lack of household savings and increased household debt as a dire problem for the New Zealand economy, as Alan Bollard and Michael Cullen do.

There was continued upward momentum for home loans over the week, with many increases in the 20 basis point range and all major banks moving fixed rates higher across the board.

Variable rates stabilised, with only one lender, Housing Corp, increasing its rate over the week. Floating loans now differ between Superbank's 8.30% and NZ Mortgage Income Trust's 9.50%.

One-year rates still vary from the 7.60% offered by Southern Cross to 9.00% from GEM Home Loans, but 23 lenders increased their rates.

Similarly, 22 lenders raised the two-year fixed terms. Kiwibank and PSIS now share the lowest part of the range, offering 7.95%, while Headstart's 8.95% marks the top.

Three-year rates vary from the 7.90% offered by TSB, PSIS and Kiwibank to Headstart and Westpac's capped rate of 8.85%.

Nineteen lenders raised their five-year rate. The 7.70% offered by Housing Corporation and Kiwibank now sets the low mark, while Gem Home Loans' 8.60% is the highest.

While increases dominated the home loan market, three lenders actually cut rates. Argosy Property Finance lowered its rates slightly as it trimmed its margins a little, while New Zealand Finance lowered its three- and five-year rates.

In other news, as Westpac raised all its fixed rates, it removed the 8-month special rate and added a 30-month rate of 7.99%.

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