Interest rates remain flat, although choppy water all around

The great home loan rate sale I talked about last week may not actually happen this year. Why this u-turn? Partly it’s to do with the comments from the Reserve Bank governor last week but there are other reasons too.

Alan Bollard, as we all know and expected, left the official cash rate unchanged at 2.50% and made noise that it may stay there for longer than expected.

Those comments tally with what we have been thinking for some time. That is the pressure on interest rates is likely to be downwards rather than upwards. To see a big hike in rates you’d need to see some pretty positive economic news. But as Bollard said last week when you look offshore there are dark clouds everywhere.

Things are much better in this country, but that won’t be enough to trigger rate increases.

There are some interesting things happening at the moment and on balance they are positive for borrowers. The “emergency” 50 point OCR cut earlier this year was made in the wake of the events in Christchurch and to shore up the economy.

There is a growing argument – well one I hear – that the Christchurch factor isn’t the relevant and the cut is actually benefiting other centres, particularly Auckland. In this city the housing market is significantly stronger than the rest of New Zealand.

The argument goes on to suggest the 50 point cut should be removed quickly to slow Auckland down.

And then we come to the banks. It seems none of the big boys are falling over themselves to get into a Spring campaign which invariably comes an expense exercise in getting new business.

Lending growth isn’t that strong at present an there is not enough new business to chase. Rather the banks are focused on customer retention.

With floating rates they have fat margins and there is no need to sacrifice these and get borrowers onto fixed rates.

While there was a growing expectation that the Reserve Bank would increase the OCR 50 basis points in December that is now looking less likely.

For borrowers and property investors the interest rate looks pretty benign and what you see is what you are going to get for some time.