Homeowners shouldn't hold their breath for a cut to their mortgages despite today's low inflation figure.
The rise in the cost of living has hit a 13-year low of just 0.8 per cent for the year to September 30, due to the high New Zealand dollar and slack domestic economy.
Westpac economists said the unexpectedly low rise in the cost of living was due to some quirks in the figures, meaning an interest rate cut by the Reserve Bank as a result was a risk, not likelihood.
Home lending rates have recently been under pressure. A bidding war for market share broke out earlier this month, sparked by Kiwibank and followed by ANZ, whose axing of its National brand has prompted other banks to seek disgruntled National Bank customers.
At the moment, standard floating rates range from 5.65 per cent, from SBS, to 6.24 per cent, from Westpac, with many banks around the 5.75 per cent mark.
The majority of mortgage lending is still floating rather than fixed, which means most consumers are able to switch lenders without getting hit by break fees.
Six-month standard fixed rates range from SBS' 4.99 per cent to 5.75, offered by a number of banks.
The Greens and the EMA have already called for an interest rate cut, saying the low figure means the Reserve Bank has plenty of scope to take the knife to its 2.5 per cent interest rate to help boost the economy. The bank's Official Cash Rate heavily influences mortgage and deposit rates.
"We need the Reserve Bank to do what it can to give exporters a break and stimulate the economy,” EMA chief executive Kim Campbell said.
He said a lower interest rate would help business confidence and boost export competitiveness with Australia.
But when new Reserve Bank governor Graeme Wheeler releases his first interest rate review next Thursday, nobody is realistically picking a cut. In fact economists expect the next move to be up - some time next year.
That's because while today's inflation figure was lower than expected, it covers the months and year already gone. Looking ahead, which is what the central bank does, inflation is picked to rise.
Consumer inflation, as measured by the Consumers Price Index, is seen reaching about 2 per cent in the coming year. The central bank has an agreement with the Government saying it will aim to keep inflation between 1-3 per cent.
Responding to today's data, ASB economists actually pushed out their timing expectations of an OCR hike - to September from June - largely prompted by the weaker offshore economic outlook.
They said the subdued inflation meant there was little urgency to increase interest rates for the time being. Continued housing market strength, along with a gradual rise in domestic inflation, would push the Reserve Bank to start gradually lifting interest rates in the closing stages of next year.
One unknown in the mix is that next week's OCR review will be the first from new governor Grant Wheeler so economists have no steer on how to predict his actions.
"We just do not know what emphasis Governor Wheeler will place on offshore downside risks versus emerging domestic upside risks to inflation," TD Securities head of Asia-Pacific rates and strategy research Annette Beacher said.
She expects Wheeler to keep rates on hold and note substantial downside risks to New Zealand through further downgrades to global growth and soft commodity prices.
- © Fairfax NZ News