There is no immediate need for borrowers to undertake urgency
this year but BNZ economist Kymberly Martin is warning
Most economists are picking the Reserve Bank to hold off
lifting the official cash rate from the current 2.5% until at
least late this year.
New Zealand swap yields had finished the year not far from
where they started. Yields rose sharply at the end of March
last year as European concerns eased and the market
anticipated Reserve Bank rate hikes.
Subsequently, as rate hike expectations faded, yields fell
back and settled into a steady trading range for the second
half of the year.
Ms Martin said the New Zealand interest-rate curve flattened
notably until midyear, also finding a steady trading range in
the second half of the year.
Overall, bank funding costs had remained elevated as banks
worked towards the January 1 deadline to meet Reserve Bank
liquidity policy targets.
''Still, sharp spikes in short-term funding costs, resulting
from stress in global markets, have been absent during the
Borrowing trends had bottomed out across all sectorsof the
economy. However, the pick-up in loan growth hadbeen muted,
Despite that, the BNZ anticipated market expectations
regarding the OCR to wax and wane as they had over the past
BNZ forecasts for short-end yields were for them to remain
largely range-bound in the first three months.
''We see a first OCR hike in December 2013. We expect the
cash rate to move progressively back towards neutral,
reaching 4.25% by the end of 2014.''
For much of the year, data and Reserve Bank rhetoric would
probably provide little to dissuade the market of its view
the rate hiking cycle would have a very gradual gradient once
under way, Ms Martin said.
''It is really only in 2014 that we expect markets to be
surprised by the steepness of the OCR trajectory and for
yields to rise more aggressively.''
Late this year, there should be some pre-positioning for that
scenario. The BNZ was forecasting a two-year swap rate of
3.4% by December, from the current 2.74%.