Fixed rate mortgages could be set to tumble to new lows in the coming months after the Reserve Bank signaled it may have to cut the official cash rate again this year.
The Reserve Bank kept the rate at 2.5 per cent this morning but in a statement said “some further policy easing may be required over the coming year” to get inflation within its target.
The statement is a shift from the end of last year when the bank indicated it would prefer to keep the rate on hold.
Dominick Stephens, an economist at Westpac, said fixed mortgage rates were influenced by the financial markets and prices had indicated fixed rates would stay the same.
“But markets are now accepting there really is a good chance of cuts.”
Stephens said the one issue that could throw a spanner in the works was the volatility in global sharemarkets seen since the start of the year.
When sharemarkets were more unstable overseas lenders tended to charge New Zealand banks a greater premium to borrow money as New Zealand was seen as a riskier bet than other countries.
“The market turmoil might keep the upward pressure on.”
But Stephens said in his opinion a cut by the Reserve Bank would have more influence on the rates.
Overall I would expect fixed mortgage rates to fall.
Banks typically cut their fixed mortgage rates ahead of the Reserve Bank cutting its rate meaning changes could be on the cards in the coming weeks.
The next official cash rate announcement is due on March 10.
Stephens said markets had shifted to price in a 50 per cent chance of an official cash rate cut in March but there was some indecision over whether it could be March or June.
Home-owners were able to grab a sub-4 per cent rate last year with SBS Bank offering 3.99 per cent but that special has since ended.
Last week TSB bank announced it was offering 4.29 per cent over two years – the lowest rate currently available, according to interest.co.nz.