The Reserve Bank of New Zealand last Thursday increased the Official Cash Rate to 3.5% (+0.25%)which is the third consecutive rate rise in the last 3 announcements.
What differs from the last two announcements is the comment “It is prudent that there now be a period of assessment before interest rates adjust further towards a more neutral level”. The first part of the statement is the OCR will not rise in the September Monetary Policy Statement but there is a signalled intention of future rate rises.
Economists are predicting a pause in rate changes until 2015 which in my opinion is likely. Despite this, in reading the market commentaries and outlooks, there is a new train of thinking that doubts the tightening cycle will continue, and suggests the possibility of a loosening cycle looking forward. They are backing this thinking with data from the Global Prices of our 2 major exports, Dairy and Logs, which have dropped away substantially, on the back of falling demand from China. One commentator has suggested “our dairy boom is mirroring the Australian Resource Boom” and we are all aware of the large reduction in iron ore prices, and what this did to our trading partner across the ditch.
There is currently a sweet spot in the 2 year Fixed Rate offering, which is well below the current Floating Rate and the 2 year term gives a longer period of certainty than the 6 and 12 month cheaper rates.
The rate you choose depends on your personal circumstances. Understanding these and the market will help you make the best decision. The Bank’s are offering strong special interest rates so make sure you check what is available.
