Interest Rate Rises

Most of the banks have now increased their mortgage interest rates by a few points. You would think this was the end of civilisation as we know it by some of the reaction in the  media. All we have are the banks doing Allan Bollard’s job by default. No doubt the banks and the RB had a little chat over tea and biscuits and decided that this is how to have an interest rate rise without actually upsetting matters during the run up to the election. Step back a minute. The small increase in rates only brings back rates to where they were before the “emergency” cut after Christchurch earthquake. They are still the lowest for decades and all the talk about higher rates is merely an attempt to keep any inflation under check.
So it’s business as usual despite all this. Of course any blip upwards of interest rates feeds directly into costs which feeds into price rises, which feeds into rents as so on and so forth.

ASB next bank to raise rates

03/08/2011

ASB, a unit of Commonwealth Bank of Australia, has raised its fixed-term mortgage rates even though the Reserve Bank of New Zealand left the official cash rate (OCR) unchanged at 2.5 per cent last week.

The move comes a day after Westpac increased its six-month mortgage lending rate by 26 basis points to 5.85 per cent and its one-year capped rate by 25 basis points to 6.75 per cent.

Westpac New Zealand chief executive George Frazis said yesterday that none of the major banks in New Zealand were trying to make their mark as a price discounter and this created a more rational credit pricing environment.

Westpac New Zealand had doubled its return on equity in the past two years from about 8 per cent to close to 15 per cent, he said.

ASB hiked its fixed mortgage rates by between five and 40 basis points. The one-year rate was now 6.15 per cent, the 18 month rate was 6.40 per cent, two-year rate 6.65 per cent, three-year rate 6.95 per cent, four-year rate 7.35 per cent, and five-year rate 7.75 per cent.

Economists expected the RBNZ to hike the OCR by 50 basis points in September.

BNZ said this week it expected 150 basis points of rate hikes over the next 12 months as local economic data continued to improve. BNZ argued the central bank would have to respond to higher inflation.

However, Bernard Doyle at JBWere said this week there was little danger of run away inflation as the world economy was sluggish.

”The RBNZ has plenty of time,” he said.

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