Expert says borrowers are anticipating rises, moving away from shorter-term rates
Westpac New Zealand and ANZ have become the latest major banks to change their OCR calls, and are now forecasting a rate hike in November 2021 - the same prediction as that released by ASB and BNZ this week.
The new forecast comes off the back of a sharp rise in business confidence, after the Reserve Bank of New Zealand previously indicated that it may increase the OCR around September 2022.
Westpac acting chief economist Michael Gordon said that strong economic indicators could lead to a tightening of monetary policy earlier than expected, though noted that any rises in the OCR would be done gradually.
Read more: OCR hike may be coming sooner than expected
“Having just recently brought forward our forecast of the first OCR hike to August 2022, we’re now questioning whether the RBNZ has even that much time on its side,” Gordon said.
“We now expect the first OCR hike to occur in November this year, with follow-ups in February and May next year, and a further gradual tightening over the following years.”
Commenting on her prediction, ANZ economist Sharon Zollner said: “We have been emphasising for some time that the risks were becoming strongly skewed towards lift-off this year. Now that the market is there, it’s more likely. We are now forecasting the RBNZ to start hiking in November, lifting the OCR in steady steps to 1.75% by February 2023.”
When it comes to property values, CoreLogic head of research Nick Goodall said that they would be “firmly tied” to what happens with interest rates over the short to medium term. He also noted that some borrowers are already moving away from shorter-term fixed mortgage rates in anticipation of an upwards trend.
“Consideration of property values is firmly tied to the interest rate outlook, and intertwined in that are inflation expectations,” Goodall said.
Read more: ANZ economists release update on OCR forecast
“As part of the recently released forecasts from the Reserve Bank came the ‘OCR track’, with the next move likely to be up rather than down, as had been happening previously. We’re already starting to see this weighing on mortgage-holders’ minds, as fewer are fixing their mortgages at short-term rates. It’s a minor shift as opposed to a giant swing, but it does present insight into borrowers’ expectations.”
“Once interest rates do start to lift, any movement will likely be slow and steady, with the Reserve Bank reaffirming its view that the economy continues to require stimulation, and this includes low interest rates for an extended period of time,” he added.
“But there are inflationary concerns putting pressure on interest rates to lift, so that is one thing to look out for in the short to medium term future.”
