The continuing rise in interest rates on fixed-rate mortgages in New Zealand yesterday generated some unusual consumer advice from the Reserve Bank of New Zealand, which predicted that the current rise in rates would be short lived.
The RBNZ yesterday published a statement in the name of its governor, Alan Bollard, that "expressed concern over the recent strength of long-term wholesale interest rates" and reiterated themes in the central bank's Monetary Policy Statement published on March 12, namely that the economic recovery would be very gradual and that "the risks around the outlook continue to be weighted to the downside."
"In these circumstances," the RBNZ said, "we believe the rise in longer-term interest rates is unwarranted and inconsistent with the monetary policy outlook … We are projecting interest rates to remain at relatively low levels for an extended period."
Fixed-rate mortgages are a popular choice in New Zealand, partly thanks to the marketing strategies of banks over the last five or six years. As a result floating-rate home loans are rare.
All banks have lifted their five-year home loan rates to 7.5 per cent or higher over the last three weeks from around six per cent before March 12, according to
Interest.co.nz.
This largely reflects wholesale funding costs rather than a concerted effort by lenders to widen margins. The yield on five-year New Zealand government bonds bottomed out at around 3.8 per cent over the last couple of weeks and is now close to five per cent, again according to Interest.co.nz.