The market has provided
borrowers with a reprieve and they should consider using it,
BNZ interest rate strategist Kymberly Martin said yesterday.
There had been a significant pull-back in New Zealand swap
rates in recent months and there had been multiple influences
At the short-end of the interest curve, the market had
ratcheted down expectations for future official cash rate
''The Reserve Bank has indicated the stubbornly high New
Zealand dollar could cause it to temper the near-term pace of
Also, the steady fall in longer-dated United States treasury
yields had caused longer-dated New Zealand swaps to decline,
Ms Martin said.
In earlier months, when New Zealand swaps were higher than
today, the BNZ argued there was no longer compelling value in
hedging at such levels. Some borrowers felt they might have
missed the boat.
However, markets had handed out a reprieve where three-year
and five-year swaps were 0.25% and 0.35% respectively below
recent peaks. Ten-year swaps were about 0.55% below December
''We now believe the market seriously underestimates the OCR
hiking cycle. It prices only 1.25% of hikes over the next two
years - that the OCR will only be back at `neutral' 4.25%, 27
months into a tightening cycle when the economy is expanding
well above trend.
''By contrast, we see the OCR at 5% by the end of next year.
The Reserve Bank, in its last published monetary policy
statement, saw the OCR at 5% in two years' time.''
There was now compelling value in hedging out to five years
based on the BNZ central OCR forecasts, Ms Martin said.