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There had been a significant pull-back in New Zealand swap rates in recent months and there had been multiple influences at work.
At the short-end of the interest curve, the market had ratcheted down expectations for future official cash rate rises.
''The Reserve Bank has indicated the stubbornly high New Zealand dollar could cause it to temper the near-term pace of rate hikes.''
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 highs.
''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.