Kiwibank’s chief economist said the speed of mortgage rate increases in recent months has come as a surprise.
The bank on Tuesday raised rates on a range of mortgage terms, increasing its special two-year rate from 3.3% to 3.59%, and its standard two-year rate from 4.15% to 4.44 %. His three-year special went from 3.65 percent to 3.99 percent.
It follows several moves by other banks in recent months, which have pushed rates back to their previous all-time lows.
The Reserve Bank raised the official treasury rate for the first time in seven years this month, from 0.25% to 0.5%, and economists say it is likely to continue on that path, despite Auckland’s ongoing lockdown.
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Kiwibank economists said the surge in inflation in the September quarter, which raised the annual rate to 4.9%, would lead to further tightening.
The Reserve Bank targets inflation between 1% and 3%, and up to a midpoint of 2%.
Kiwibank chief economist Jarrod Kerr said inflation is expected to peak at 6%.
He now expects the official treasury rate to hit 2 percent in November next year. He had predicted earlier that the Reserve Bank would hit 1.5% and take a break.
He said the rate of increase in mortgage rates had been faster than expected. “In May, we expected a first lift early next year or at the end of this year, but we are now looking at two rate hikes this year and more next year.”
There was also illiquidity in wholesale markets, he said, due to the appetite of hedge funds and sovereign wealth funds for fixed rate money.
“Banks found themselves trying to hedge mortgage flows, paying the fixed rate in swaps, in a market where there is little on the other side… This imbalance will continue in the Bank’s November SPM. reserve. The imbalance indicates an increased risk of rising mortgage rates. “
Kerr said mortgage rates will continue to rise, but at a slower pace.
Infometrics economist Brad Olsen said the government’s targeted support for those affected by the Auckland lockdown meant there was less need for sustained monetary policy support from a low rate of exchange. official treasury.
“Economic conditions remain favorable, business confidence is holding up well and consumer confidence is also holding up. Increasingly, the parts of the economy hit hard by the foreclosure are more specific and defined, meaning that a targeted approach rather than general support is better used to focus on those in need of support.
“Equally important, there remain real and persistent economic pressures, with higher shipping costs and continuing supply chain disruptions, and spending activity still strong outside of Auckland.
“As the government begins to shoulder a greater share of support in the current environment, the Reserve Bank will want to reduce the level of emergency stimulus it is providing to the economy, as inflation rises and capacity constraints are making themselves felt. “