Banks are picking the official cash rate (OCR) to rise over the next few years, potentially pushing up the cost of paying down a mortgage - but first-home buyers hoping for a break might have to wait a bit longer yet.
ANZ, the biggest of the 'big four' banks in New Zealand, says it expects the OCR to increase 400 percent - from its present 0.25 percent to 1.25 percent - by the end of 2023. ASB thinks it'll hit that mark in early 2024.
The Reserve Bank will meet to decide its next move on May 26, after the delivery of this week's budget.
"There is no question that the picture is evolving and that it is getting harder to argue that super-stimulatory monetary policy is the medicine that the economy needs for a prolonged period," said ANZ chief economist Sharon Zollner.
Interest rates plunged last year to stimulate the economy hit hard by COVID-19 and the subsequent lockdowns, with employment widely - and ultimately wrongly - tipped to hit double-digits.
Independent economist Cameron Bagrie says it's a good sign that there's talk of it rising again.
"It's a sign of success," he told The AM Show on Tuesday. "It's a sign that the Reserve Bank is on track to meet what's called their remit - full employment. We've got unemployment now down to 4.7 percent and it's dropping. Inflation pressures are moving up. So the economic story here is a good one, a successful one - when you've got that economic success story, you don't need interest rates as low for so long."
The low OCR has been blamed for the sharp rise in house prices over the past year. Like unemployment, predictions of a doomsday scenario - a collapse in values - was totally wrong. Instead, they went up even faster than before, with the nationwide average (mean) value now above $900,000.
Zollner earlier this month said there would be no fall in house prices until the OCR went up. While this will be good for those looking to buy, current owners will see their costs rise dramatically.
"The flipside is that someone pays," said Bagrie. "So if ANZ is correct and we get 100 basis points' worth of OCR increases in the next 30-odd months, you're going to see the likes of a one-year fixed mortgage rate go from 2.25 to 3.25 percent. [That's] still really, low, still really cheap money, but that's about a 45 percent increase in your interest bill, and that's not a small number."
The Government also recently said it would progressively strip landlords of the ability to write off this interest to reduce their tax bill.
Even with the economy roaring again, Bagrie said interest rates won't rise to the levels they were three or four years ago - there's just still too much uncertainty.
"We expect the RBNZ will continue to strike a cautious tone and stress that considerable monetary stimulus remains appropriate and is expected to remain so for quite some time yet while the dust settles and the true economic picture becomes clearer," Zollner said on Monday.
"There's still a lot of uncertainty out there, absolutely. But there is no question that the picture is evolving and that it is getting harder to argue that super-stimulatory monetary policy is the medicine that the economy needs for a prolonged period."