ASB Bank defied predictions by yesterday cutting several
of its home lending fixed rates. The expectation is the bank
now thinks the Reserve Bank will hold off increasing the
Official Cash Rate for longer than its own economists, and
those economists of other retail banks, are predicting.
ASB has reduced its three, four and five-year fixed interest
rates to assist its customers who wanted more certainty in
their home loan repayments in the longer term, bank retail
products and strategy general manager Shaun Drylie said.
The special two-year fixed rate of 5.25% had ended and the
two-year rate was now aligned to the 12-month and 18-month
fixed lending rate of 5.45%.
The three-year rate goes down 0.15% to 5.75%, the four-year
rate goes down 0.15% to 5.95% and the five-year term falls
0.25% to 6.25%.
Craigs Investment Partners broker Chris Timms said the ASB
was not expecting much of a change when it came to the
Official Cash Rate (OCR) which was at a current low of 2.5%.
Westpac chief economist Dominick Stephens said home loan
fixed lending was likely to prove better value than floating
over the next few years. Fixed-term rates out to two years
were currently well below floating rates while three-year and
longer fixed rates were only slightly higher.
''Staying on floating would only be the better option if the
Reserve Bank actually cut the OCR. While that's a risk, our
central view remains that the OCR will stay on hold for now
and increase steadily from the second half of this year,'' he
Bank of New Zealand chief economist Tony Alexander believed
the Reserve Bank would not raise the cash rate until next
year but that fixed rates would rise as United States
economic growth improved while worries grew about inflation
and financing the US deficit.
Last week, the December inflation data showed inflation
remained below 1% and had remained at 1% or below for three
The lower lending rates could place even more pressure on a
heated property market, with prices and activity in Auckland
and Christchurch already on the rise.
Mr Alexander predicted housing prices would rise this year,
probably at a faster pace than last year because demand
exceeded supply at current prices.
''The housing affordability debate will grow and the crisis
for low income earners in Auckland, particularly, will
Investor interest would spread out of Auckland while some
home owners would cash up and shift to more affordable areas
with cash freed up for retirement spending, he said.
Mr Alexander anticipated that soon, fixed rates would be
''If my strategy had been to stay floating as long as
possible before fixing then I would start hunting around for
a good fixed rate.''
The difference between fixing long term and floating was
still large and predictions in recent years of fixed rates
rising had been wrong many times. Mr Alexander wanted to see
rates rising before moving in and fixing with a bank which
was not first to move. Until then, he would sit floating or
fix for one year and focus on maximising repayments.
Mr Timms expected interest rates to remain low into next year
and that fixed-interest investors would be disappointed when
their term deposits or bonds came due this year.
In 2008, investors could get an 8% return on money on call
but with the new regime now in place regarding how much money
banks had to hold from the domestic market, interest rates
were expected to flatten.
''We expect the call rate to be under 6%, maybe 5.5%. People
thinking the call rates will get back to 8% are dreaming.''
In 2008, the BNZ was offering bonds at 8.56%,
Government-owned Mighty River Power had bonds on offer at
8.36% and the Tauranga City Council had bonds at 7.05%.
When those bonds came due during this year, investors would
get paid out rather than the bonds rolling over. The
institutions could issue more bonds but they were likely to
be at around half the interest rates offered in 2008, Mr
Investors looking around for returns as interest rates
remained low would find the mid-tier investments, such as
investment companies, had disappeared. That left them with
the NZX where they could get 6.5% to 7% return for the risk.
''The longer interest rates remain flat, the higher the NZX
will go,'' Mr Timms said.