When will interest rates rise?

It was not unexpected that the RBNZ chose to leave the official cash rate at its all-time low of 2.5 per cent yesterday.

Reserve Bank Governor Alan Bollard said there were still significant vulnerabilities and challenges to be worked through in many economies, including New Zealand.

“In New Zealand, the housing market has reversed some of the decline in prices experienced over the past couple of years and a very gradual increase in household spending appears to be taking place. Government spending is also supporting activity. Business spending, however remains weak and credit growth is very subdued,” he said.

The question remains as to when the first hike will be, with many economists forecasting an earlier move than the second half of 2010, as outlined by the RBNZ.

A recent Reuters poll of 18 forecasters found five expect the governor to have raised the OCR by the end of March and another eight expect it to be raised by the end of June.

Loan Market recommends mortgage holders start budgeting for rate rises by paying off as much as they can now while rates are low – this will prepare them for when the minimum repayment rises and also create a buffer.

Source: www.nzherald.co.nz