Another bank hikes mortgage rates as OCR expected to remain high for some time

Another bank has hiked its mortgage and term deposit rates after the Reserve Bank suggested the official cash rate could remain elevated for longer than previously expected. 

ANZ increased most of its mortgage rates for two or more years by around 20 basis points and cut its six-month rate by 10 points. Its one-year rate was increased by six points while the 18-month rate jumped by 15 points. 

It comes after ASB revealed several increases to its longer-term mortgage rates on Monday. ASB increased its two-year rate by 10 points and its six-month, three-year, four-year and five-year rates by 20 points. 

Its two-year mortgage rate is now 6.89 percent a tad below ANZ's special two-year rate of 6.99 percent. 

ASB and ANZ's three-year mortgage rates are both now 6.69 percent and their one-year rates are 7.25 percent. 

The increases are in response to the Reserve Bank of New Zealand (RBNZ) indicating last week the OCR was likely to stay high for some time to deal with stubborn inflation. 

The Reserve Bank reviewed the OCR last week, keeping it at 5.5 percent for the second consecutive month -  after lifting it by 525 basis points since the end of 2021 in a bid to tame skyrocketing inflation.

Most economists expected the pause in the tightening cycle to continue.

In last week's monetary policy statement (MPS), Reserve Bank Governor Adrian Orr said higher interest rates were constraining spending and inflationary pressures.

"The committee agreed that interest rates still need to remain at a restrictive level for the foreseeable future, to ensure annual consumer price inflation returns to the 1 to 3 percent target range while supporting maximum sustainable employment."

Orr pointed to the lagged effect of previous OCR hikes, with the average mortgage rate loan expected to rise to 6 percent by the start of next year.

However, the MPS did not rule out further tightening of monetary policy. The RBNZ noted "expectations for the level of the OCR next year have increased, with fewer cuts priced through 2024 than prior to the May Statement".

The MPS noted non-tradable inflation came in "somewhat higher in the June 2023 quarter than expected" in May.

While economic data since the May MPS had been mixed, the RBNZ on Wednesday said "labour market pressures... have been easing over recent quarters. Consequently, non-tradable inflation is expected to decline slowly as capacity and labour market pressures continue to ease over the medium term".

"Today's decision from the RBNZ to leave the OCR unchanged at 5.5 percent will have surprised very few people. Inflation and inflation expectations have continued to show encouraging signs of a slowdown and there have also been a few hints of a looser labour market too, partly thanks to high net migration," said Kelvin Davidson, CoreLogic's chief property economist.