Local bank TSB has hiked its one and two-year fixed home loan rates by more than 10 basis points, a week before the Reserve Bank is expected to raise the official cash rate from its record low of 2.5%.
TSB’s one-year fixed mortgage is now 6.15%, up from 5.99%. The two-year rate has risen closer to the market average at 7.19%, up from 7.09%.
These rates still remain among the lowest in the market, with most of the major banks offering one-year rates of around 6.35% and two-year rates of 7.3%.
HSBC still undercuts the major banks with its standard 12-month rate of 5.49% -- the only one-year, fixed-term rate that falls below 5.5%,
TSB’s floating mortgage rate is unchanged at 5.99%.
Reserve Bank governor Alan Bollard has indicated he would start lifting the official cash rate around the middle of this year.
He may choose to do that on Thursday, or wait until the end of July.
This week Australia’s central bank left its official cash rate steady at 4.5%
The New Zealand Institute of Economic Research, in its Quarterly Predictions released this week, said heightened economic uncertainty, led by Europe’ sovereign debt crisis, reduced the need for an interest rate hike.
NZIER principal economist Shamubeel Eaqub said there was no urgency for the Reserve Bank to raise interest rates in this environment.
“A gradual hiking programme from September would allow time to gauge the impact of the current risk flare, a preferable option to rushing rate increases that may have to be reversed.”
“Our more cautious forecasts reflect the view that not all of the past interest rate cuts will be translated into economic growth. This is because credit growth, the main link between monetary policy and economic activity, is still very weak,” Mr Eaqub said.
“From next year, interest rate increases will be accompanied by reduced government spending. Together, these will slow economic growth.”
Inflation is expected to spike at 5.9% in March, more than triple the current level of the CPI. This is largely due to the rise in GST, introduction of the emissions trading scheme and ACC levies.
For many lower income households the tax cuts will be largely spent on living cost increases, which will be compounded by rising mortgage rates.
Taranaki’s TSB Bank last week reported its net profit rose $13.1 million or 21% to $74.3 million in the year to March 31.
The bank said it had seen exceptional growth with depositors' funds reaching $4 billion.
Thu, 03 Jun 2010