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Interest Rates - Act Now... Or Wait Until Next Week?

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Brian Dalley
Brian Dalley

Fixed Rate, Floating Rate, or a Combination?

As at today’s date, one week out from the next OCR announcement nothing is certain however reading between the lines I think there are signs to guide us in one direction more than another but let’s first look at what a few bank economists have to say.

For a more in-depth read click on Interest Rates as most reports are updated weekly.

Westpac - "The decision to fix or float remains finely balanced. Floating rates remain lower than short-term fixed rates at the moment, but they are likely to rise faster as the RBNZ increases the OCR. Fixing, if even for a short term, has the advantage of greater certainty around cash flows, at a time when floating rates could be rising rapidly. Repaying more than the minimum amount, and spreading the loan over a mix of terms, can also help to reduce the overall risk around uncertain future interest rate changes."

BNZ – “Last week we noted retreating expectations about the speed with which monetary policies would be tightened around the world which on the face of it argues for staying at a floating rate as long as possible and taking a punt on the RB pausing in their tightening cycle. But at the same time these changing offshore tightening expectations have reduced medium to long term funding costs and produced lower fixed housing rates here in NZ. So now we need to examine things again to see if we are still slightly in favour of floating or whether one might want to jump into one of the newly discounted 1-3 year fixed rates purely in an opportunistic manner as discussed since the middle of last year.”

Unfortunately, only two economists put up their hands but between them it is a fair overview of what others have told me. Generally, they expect interest rates to increase as we all do but the big question remains as to when, and by how much.

I feel the OCR is likely to remain unchanged on the 29th and could lead to retail interest rates easing as lenders scramble to increase the subdued volumes as of late. In addition, another good reason is to help stabilise a stalling economy.

Should that prediction prove to be right then one would be advised to wait a week or two before deciding. And if the opposite applies and the OCR is increased, soon after I would be looking seriously at those new discounted longer term rates.

A combination of fixed and floating or even two different fixed terms could be the way to go.

I am sorry, I do not have a crystal ball, and lending structures are never black and white. All I can do is try and read between the lines and call it as I see it.

Much of what I have to say may not be all that useful, or even conclusive. But that’s all right. I am trying to start a conversation, not have the last word,

Brian Dalley is a former NZMBA Mortgage Broker, Property Investor, and Real Estate Agent with over 15 years experience in the industry. You can read more of his and other professional’s views and opinions on his website 

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