Interest Rates

Interest Rates

Posted by Mike Keehan on 4 November 2011 | 0 Comments

Tags: Interest Rates, Outlook

The official cash rate was held at 2.5% by the Reserve Bank at this month’s review. Persuasive factors included our modest level of economic activity, a relatively high rate of unemployment, the  acceptable rate of underlying inflation, and difficult international conditions.

Floating mortgage rates are still more competitive than fixed rates, although there has been some easing of the fixed rates, primarily (in my view) as a banking strategy to ‘tempt’ and lock-in consumers.

Global economies are still in turmoil and this could have an effect on us in New Zealand and the cost of borrowing money, but this general instability is more likely to signal that interest rates will stay lower for longer.

The NZ dollar is still comparatively high, which of course is a concern to exporters. Longer term, the re-construction of Christchurch will increase inflationary trends. Australia has just reduced its official cash rate indicating its desire to generate more economic activity.