Little change expected for floating borrowing rates

  • 13/02/2017
Pressure on bank funding costs means risk prevails for borrowing rates (File)
Pressure on bank funding costs means risk prevails for borrowing rates (File)

Borrowers can expect floating borrowing rates to be well contained for some time yet, Bank of New Zealand economists say.

The Reserve Bank of New Zealand held its official cash rate at 1.75 per cent last week.

Most economists expect the next move will be up, which will feed through to mortgage rates, but it won't be for some time.

Last week Finance Minister Steven Joyce cautioned potential property buyers from getting too comfortable with New Zealand's historically low interest rates, saying they should consider whether any mortgage debt taken on is still affordable in three or four years if rates rise.

BNZ economists sat there's little chance of the OCR being cut again this cycle so the key question now is for how long will it stay at 1.75 per cent.

They're picking May 2018 for the timing of the first rate hike but the market continues to see the balance of risk skewed towards an earlier date.

Market pricing shows a fairly even chance of a 25 basis point tightening in November 2017 and more than a full hike priced in by February 2018.

"Borrowers can expect a historically low OCR to help keep floating borrowing rates well contained for some time yet," BNZ economists say.

"But a little upside risk still prevails, given the upward pressure on bank funding costs."