Floating rate competitive
The Reserve Bank of New Zealand has held its official cash rate (OCR), the benchmark for interest rates, at 2.5 per cent. The weakening of the New Zealand dollar in recent times has effectively ruled out any action by the bank to lower the OCR.
Comments by Reserve Bank Governor Alan Bollard indicate that the rate will remain unchanged for the balance of this year.
At this point, based on the Reserve Bank’s 90-day bill forecasts, the OCR may increase in June 2013 or September 2013.
In the short term, if there is any change, it is more likely to be a decrease than an increase.
Bollard stated that the bank is keeping a close eye on the European economic crises, and if any country leaves the euro zone it could lead to the Reserve Bank lowering the OCR in this country. So what can we take from this? We know that floating rates are stable at the moment and unlikely to change over the next year. However, if the European economies continue to deteriorate we could see a drop in the OCR as a reaction.
The median fixed rates offered by the major banks are: one year
Close eye on Europe: 5.25 per cent, two years 5.55 per cent, three years 5.75 per cent, and five years 6.5 per cent.
The one-year and two-year fixed rates are both lower than the floating rate and represent good value. The floating rate is also competitive and there is still an opportunity for this to reduce in the short-term.
A quick poll in our office shows most of us would consider the oneyear fixed rate, or just stay floating and see what happens.
It is important to remember that we are in a period of historically low interest rates, and all home loans at the moment represent good value. However, we are also in a global recession and experiencing earthquakes.
The flexibility of a floating rate is probably more beneficial than usual in these circumstances. If you are on a floating rate and you are not 100 per cent certain of what the next few years hold for you, staying floating is a great place to be.