Fixed mortgage rates set to fall, says economist
Fixed mortgage rates look set to fall as financial markets adjust to moves being made by the Reserve Bank, Westpac chief economist Dominick Stephens said.
Stephens, addressing the New Zealand Shareholders Association annual conference, said markets were still coming to terms with the approach taken by Reserve Bank Governor Adrian Orr, who has been in the top job since March.
Two-year fixed mortgage rates remain below five per cent across the major banks, and this looks set to continue with the latest predictions.
Homeowners ready to renew their mortgage agreements in the coming months could benefit from lower rates.
Early this month, the central bank kept its official cash rate unchanged at 1.75 per cent, as expected, but surprised the market by saying it expected to keep the rate there through to 2020. Even then, the next move could be up or down, the bank said.
The statement was viewed as being “dovish” — or less aggressive on inflation — and precipitated a sharp fall in the New Zealand dollar, which has remained weak.
“Financial markets are still digesting this news about the governor’s attitude,” Stephens told an audience of around 400 people at the Ellerslie Convention Centre. “They have just sent wholesale fixed interest rates down a long way and that is currently causing a substantial drop in fixed mortgage rates,” Stephens said.
Like other economists, Stephens had to adjust his ideas after the Reserve Bank’s statement.
He believes there is a possibility of a rate cut within the year.
“There is a one-in-three chance that the official cash rate will fall over in the coming year. If it does not fall, I think it will be a long time until it rises,” he said.
He said developments in technology had suppressed inflation and kept retailers from banking fat margins.
“For that reason, I don’t think the Reserve Bank is going to lift interest rates for a very long time indeed.
“I think the new Governor is more dovish than his predecessor. He is more likely to want to shore up growth and is less likely to jump on the first signs of inflation.”
Elsewhere in his presentation, Stephens said recent business confidence surveys had portrayed a picture of the economy that was too pessimistic. His view was the economy was more “mixed” rather than “desperately negative”. Economic growth in 2019 will be better than the current year when the full impact of Government spending starts to kick in, he said.
The economy has slowed from the 4 per cent annual GDP growth over 2014-16 but the outlook from here was “not all doom and gloom”.
Stephens said bright spots included the booming tourism sector and a strong export sector that looked likely to get a further boost from the sharp fall in the New Zealand dollar.
In his address, Finance Minister Grant Robertson quoted comments from Sky City chairman Rob Campbell that “overall, New Zealand remains a good place to do business”.
“The fundamentals of the economy remain very strong indeed,” Robertson said.
“We see a slight slowdown from what we have seen over the last few years but it will build back up through 2019 and 2020,” he added.