Bracing for new rise in interest rates

Interest rates are top-of-mind for many borrowers at the moment because the Reserve Bank is expected to increase the official cash rate (OCR) tomorrow by at least 50 basis points and probably 75.

Chris Tennent-Brown, a senior economist at ASB, said that would not necessarily have an immediate impact on fixed home loan rates because many had priced in further OCR increases.

‘‘It’s going to be more about the outlook and their actions – a 75bp hike and a really aggressive outlook might get the fixed rates moving over the next few weeks, but wholesale markets and mortgage rate movements over recent weeks have factored in an OCR increase this week, and more next year.’’

He said he expected fixed rates to peak at ‘‘high sixes to mid sevens’’ if the OCR stopped where the market expected, at about 5%.

Christchurch woman Grace Brown said her mortgage was divided in half. One half had already rolled off its fixed rate of 4.9% to a floating rate of 7.34% and was costing $150 a fortnight more. The other half will come up for refixing in December.

‘‘I’m fortunate enough that I’m only looking after myself at the moment, I have a fairly low mortgage so I can accommodate the extra for a while.’’

She said she was deciding whether to refix the floating portion now or wait until she could potentially look for a better deal on the whole loan with another bank.

Brown said she had been thinking about buying another house and renting out her existing home but the rise in interest rates meant she was now no longer looking in the $800,000 price range, and instead in the late $600,000s.

‘‘I was going to rent out my current home and move to something a bit bigger so I can have some more space but it doesn’t look like I’m going to get that.’’

Gareth Kiernan, chief forecaster at Infometrics, said the most important aspect of the Reserve Bank’s announcement tomorrow would be the tone it took.

‘‘The recent lower-thanexpected inflation result in the US has seen financial markets start to hope that the Federal Reserve’s tightening is starting to bring cost and pricing pressures under control, potentially reducing the extent of further interest rate rises.

‘‘However, the reality is that there’s been virtually no evidence that inflation is starting to moderate here, so I expect a relatively hawkish statement from the [Reserve] Bank that could place upward pressure on wholesale rates and flow through into higher shorter-term fixed mortgage rates.’’