Borrowers’ reckoning delay

Interest rate rises are becoming a more distant prospect.

ASB economist Nick Tuffley said it could be some time yet before home loan borrowers started to feel any real pressure.

Interest rates have fallen dramatically over the past 10 years. Reserve Bank data shows twoyear fixed rates topped 9.5 per cent in 2007 before subsiding to a median 4.89 per cent today.

Now ASB’s economists have shifted their prediction for the next official cash rate (OCR) increase. Instead of expecting one in 2019, they now don’t predict a move until at least early 2020 and possibly later in the year.

They also expect that the rate will only get as high as 2.75 per cent this cycle. It is currently 1.75 per cent.

That lower peak would affect where fixed-term interest rates would settle, Tuffley said.

By 2021, the United States could be cutting interest rates, which would reduce the cost of borrowing in New Zealand.

The official cash rate has a direct impact on short-term borrowing costs. International influences play a bigger part in longer-term rates.

‘‘Globally interest rates could end up being lower for longer, not just in the US but there are implications for the EU, UK and Australia,’’ Tuffley said.

The longer the Reserve Bank waited before it moved, the less likely it was that there would be significant increases this economic cycle.

Tightening cycles usually happened when the economy was overheating but New Zealand has just been through a strong period of growth.

‘‘The bias over time is we will still see mortgage rates go up but that day of reckoning is still looking a long way away.’’

Independent economist Cameron Bagrie agreed it seemed likely that the OCR would remain on hold for some time.

‘‘The central scenario at the moment is the earliest it would move is 2020, based on the information at hand. But you can guarantee that information is going to change.’’

He said there were more inflationary pressures in the market than were being acknowledged, as wages rose.

‘‘I expect to see a shift in one direction in six or nine months.’’