This after weaker GDP data was released
Mortgage borrowers have largely dodged the Reserve Bank’s February OCR hike, with the weakness in the economy plus worries about international banks indicating that they may find more relief soon, according to economists.
Despite the 50-basis-points rate hike on Feb. 22, Reserve Bank data showed the average three-year special mortgage rate being taken out in February was 6.54%, a downgrade from 6.68% in January, while the two-year rate last month was 6.43%, down from 6.59% in January.
Chris Tennent-Brown (pictured above), ASB senior economist, said retail rates had not shifted when the OCR decision was announced, and banks had reduced some rates, particularly the longer-term fixes, within a month, Stuff reported.
Tennent-Brown said the February hike had been fully priced in by markets, and lending was quiet, leading to strong competition between banks.
“Long-term rates at least have come down,” he said.
Tennent-Brown said news last week that the GDP contracted by 0.6% in the December quarter showed the economy was slowing faster than RBNZ had predicted, which could mean there was less need for further hikes.
“We were thinking at the start of the year they could do a 75-basis-point hike at some of the meetings, then we pulled back to 50 and now are thinking maybe they’ll just do 25. It’s fairly dynamic,” he said.
The ASB economist said people, not just RBNZ, are downgrading their forecast on how far all central banks would lift interest rates. Offshore, the quick rise in interest rates contributed to bank failures such as that of Silicon Valley Bank.
Tennent-Brown said markets were now forecasting the OCR to peak closer to 5%, lower than the 5.5% peak the RBNZ predicted.
“If everything pans out as we expect, it’s normally about a year from the peak to the start of easing… the economy has slowed a bit quicker than the Reserve Bank expected,” he said. “If we start slowing down earlier and inflation pressures start dying earlier, that lends itself to the Reserve Bank being able to start to ease rates. I don’t think they’ll rush into it. If things really turn to custard they’ll want to ease rates, but that’s because they’re fearful of something bad happening to the economy. That’s not the core view at this stage.”
Westpac economists, too, believed that weaker GDP data meant it was less likely that further big interest rate hikes were needed.
“There was widespread weakness in activity, with declines in both the goods and services sectors,” they said in an update. “Notably, there were falls in retail and accommodation spending, transport, and personal services. Those are all sectors that are benefitting from the rebound in tourism currently in train, and their recent declines highlights the softening in domestic demand.
“Importantly, it wasn’t just the December quarter that has turned out softer than expected – estimates of activity through the middle part of 2022 have also been revised down. Putting that all together, it’s turned out that GDP is running almost two percent below what the Reserve Bank was expecting in its February Monetary Policy Statement. “
Westpac is now expecting a peak of 5%.
“Looking further ahead, we expect economic activity to cool off through the back half of this year,” the economists said. “Over the coming months, large numbers of borrowers will face refixing their mortgages at substantially higher rates. The resulting increases in debt servicing costs will be a substantial drag on households’ spending power and domestic demand more generally.”
Bruce Patten, mortgage broker at Loan Market, said few of his clients were opting for longer fixes.
“Everyone has got the feeling that we’re there or thereabouts [in terms of an interest rate peak],” Patten told Stuff.
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