Has the time really come for interest rates to rise? Certainly that’s the view of Tony Alexander from the BNZ.
In my view, raising rates now or even in the near future would be a foolish thing to do as the signs of ” recovery” are still merely just that- signs.
The higher inflation rate we had in the past few weeks was skewed by the rise in GST and it would seem sensible to me to wait a few more quarters to see if inflation has really got hold or not.
You will recall that Alan Bollard got the rise in interest rates horribly wrong in the middle of last year ( and I said so at the time) and almost drove the economy into recession once more.
There is an argument that the “emergency” cut in interest rates to cover the Christchurch tragedy could be reversed taking the OCR back to 3% – which is still the lowest on 40 years but no more than that until the trend is certain .
And of course any increase in interest rates will drive the NZ dollar higher still so that brings more strain on the exporters- not a good look in election year- and also hit the poorest among us even harder.
But Alan Bollard and his advisers live in another world from the rest of us.
Logic and pragmatism are not there forte.
Politics and the world of statistics make very unhappy bed fellows.
“Time’s up’ for low floating mortgages
Homeowners on floating interest rates should quickly look to lock in fixed rates before prices move up in coming months, a leading economist warns.
Tony Alexander, chief economist at the Bank of New Zealand, said that during the past fortnight there had been clear signs that the economy was gathering speed.
Economic growth was rising faster than experts had predicted, and inflation had hit a 21-year high.
This meant interest rates were likely to increase sooner than expected in an effort by the Reserve Bank to stop inflation getting out of control.
“What this means for borrowers is that time has now run out for comfortably sitting floating, planning to fix before fixed rates rise,” Mr Alexander said.
“Such rises are probably just around the corner, with some banks’ fixed-borrowing costs up 0.3 per cent from just a fortnight ago. If I were a borrower … planning to fix, then I would see high risk in waiting any longer.”
Only a week ago, Mr Alexander said floating rates were likely to offer better value for several months.
An increase in the official cash rate, which looks increasingly likely in September – with even a slim chance of an increase on Thursday – would have an immediate impact on floating rates offered by all of New Zealand’s banks.
Floating mortgage rates have become increasingly popular in New Zealand in recent years because the rates offered have been so much lower, averaging 5.9 per cent since March.
According to the Reserve Bank’s figures, 853,000 households were on floating rate mortgages in May, up from 629,000 a year ago and 382,000 five years ago.
A few weeks ago, most economists had expected the Reserve Bank to leave interest rates unchanged until at least December, but recent figures have resulted in a big change in thinking.
ANZ chief economist Cameron Bagrie said it was now possible that the Reserve Bank could increase the official cash rate this week, and that it would have to come up with a good reason not to raise them in September.”