International forces driving rate increases

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Trends in international interest rates are setting the pace for New Zealand borrowers this week.

Wednesday, January 17th 2007, 9:42AM

by Maria Scott

The bank base rate in the United Kingdom has increased to a five-year high of 5.25%, a month early than many pundits had predicted. UK economists have not ruled out the possibility of further rate rises this year. This, combined with the indications that US rates will not come down as quickly as anticipated, has helped to increase the cost of wholesale funds.

Lenders in New Zealand have been raising rates on fixed rate mortgages, some by as much as 30 basis points.

Economists in New Zealand will be looking at the latest Consumers Price Index, for the December quarter of 2006, due out today for a clue to whether the Reserve Bank will raise rates at its first review of the year on 25 January.

Cameron Bagrie, chief economist at ANZ National Bank said that the rising trend in international rates, which influenced the cost of fixed rate loans, would be noted by the RBNZ.

This would help to increase the cost of borrowing, and possibly to help cool the housing market, without an increase in the OCR.

“There has been a change in the last three weeks,” said Bagrie. “We are seeing global rates up, forcing up New Zealand’s fixed rates.”

“The global rates will help the RBNZ.”

The hardening trend in rates is likely to consolidate the view among commentators that borrowers - particularly those on tight budgets - have little to gain by postponing decisions on refinancing in the hope that cheaper fixed deals will be available shortly.

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