Longer-term rates up as economies start to heal
‘‘We are not expecting to see any rise in shorterterm interest rates this year . . . The Reserve Bank is very committed – and rightly so – that we need stimulatory conditions right here, right now.’’ Jane Turner ASB economist
ASB has increased its interest rates on three- to five-year home loans as expectations of a global economic recovery strengthen.
Economists say the move is a signal to borrowers that money markets are now pricing in rises in interest rates in 2022 and 2023 as countries recover from the economic blow that the Covid-19 pandemic has inflicted.
As well as small rises in its longer-term interest rates, ASB slightly reduced its one-year fixed rate to 2.25 per cent, below the rates offered by its big rivals.
ASB economist Jane Turner said shorter-term fixed rates for one- and two-year loans were ‘‘anchored’’ and unlikely to rise this year.
‘‘We are not expecting to see any rise in shorter-term interest rates this year,’’ Turner said.
‘‘The Reserve Bank is very committed – and rightly so – that we need stimulatory conditions right here, right now,’’ she said.
But 2022 and 2023 would see strong economic growth, she said. Fears of economic decline had been replaced with fears of inflation.
ASB’s one-year 2.25 per cent rate compared favourably to 2.29 per cent from ANZ, Westpac and Bank of New Zealand, and 2.35 per cent from Kiwibank.
But ASB’s three-year rate was now 2.89 per cent, just above its main rivals, with Kiwibank charging 2.65 per cent, while ANZ, BNZ and Westpac were each charging 2.79 per cent.
ASB’s four-year rate of 3.19 per cent is lower than ANZ’s 3.9 per cent, but higher than the 2.99 per cent charged by Westpac and BNZ and the 3.09 per cent charged by Kiwibank.
ASB’s five-year rate was 3.39 per cent, with only ANZ charging more at 3.99 per cent.
Kiwibank chief economist Jarrod Kerr said longer-term borrowing costs for banks on wholesale markets had risen in the past six months.
‘‘Interest rates last year were gutted by the Covid crisis,’’ he said.
But there was now a light at the end of the tunnel. Vaccines, a better growth outlook, and a tick up of inflation had all led to longer-term borrowing costs for banks rising.
Like Turner, Kerr said shorterterm home loan rates were anchored, and people nearing the end of a fixed-rate term should not expect to see rate increases for shorter-term loans this year.
Most home loan borrowers opted for one- or two-year rates, he said.
Borrowers like the option of shorter-term loans, which allowed them opportunities to make extra repayments more often.
Home loan rates are at low levels. In April 2001, the average two-year home loan rate was 7.2 per cent, according to Reserve Bank figures.
In April 2011, as the world recovered from the global financial crisis, it was 6.4 per cent. In March this year, it was 3.5 per cent.