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Home loan interest rates rising quickly

Susan Edmunds susan.edmunds@stuff.co.nz

Kiwibank’s chief economist says the speed of home loan rate increases over recent months has come as a surprise.

The bank lifted rates across a range of home loan terms yesterday, increasing its two-year special rate from 3.3 per cent to 3.59 per cent, and its standard two-year rate from 4.15 per cent to 4.44 per cent. Its three-year special has increased from 3.65 per cent to 3.99 per cent.

It follows several moves by other banks in recent months, which took rates well off their previous historic lows.

The Reserve Bank lifted the official cash rate for the first time in seven years this month, from 0.25 per cent to 0.5 per cent, and economists say it is likely to continue on this path, despite the ongoing Auckland lockdown.

Kiwibank economists said the surge in inflation in the September quarter, which took the annual rate to 4.9 per cent, would prompt more tightening.

The Reserve Bank targets inflation between 1 per cent and 3 per cent, and to a midpoint of 2 per cent.

Kiwibank’s chief economist, Jarrod Kerr, said inflation was likely to peak at 6 per cent.

He now expected the official cash rate to hit 2 per cent in November next year. He had earlier predicted the Reserve Bank would reach 1.5 per cent and pause.

He said the rate of mortgage rate increases had been faster than expected. ‘‘In May we were expecting the first lift at the start of next year or the end of this year but now we are looking at two rate increases this year and more next year.’’

There was also illiquidity in wholesale markets, he said, because of the appetite from hedge funds and sovereign wealth funds for money on fixed rates.

Kerr said mortgage rates would continue to rise but at a slower pace.

Infometrics economist Brad Olsen said the targeted support coming from the Government to those affected by the Auckland lockdown meant that there was less need for sustained monetary policy support from a low official cash rate.

‘‘Economic conditions remain still upbeat, with business confidence holding up well, and consumer confidence also holding up. Increasingly, the parts of the economy hard-hit by lockdown are more specific and defined, meaning a targeted approach rather than across-the-board support is best used to focus in on those who need the support,’’ Olsen said.

‘‘Just as importantly, there remain real and persistent economic pressures, with higher shipping costs and supply chain disruptions continuing, and still solid spending activity outside of Auckland.’’

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2021-10-27T07:00:00.0000000Z

2021-10-27T07:00:00.0000000Z

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