Photo: RNZ
There are some indications that home loan borrowers may have taken heed of the Reserve Bank's May warning that interest rates could rise further - and fixed their mortgages for longer terms as a result.
In May, the Reserve Bank said its monetary policy committee had discussed whether another increase in the official cash rate was appropriate.
It published a forecast in which the OCR was likely to increase again towards the end of this year.
Then in August, it cut the OCR by 25 basis points and signalled more reductions were likely to follow.
Data from the Reserve Bank relating to new loans and top-ups - not those refixing - shows that the proportion of lending on a six-month rate fell from 18 percent to 16 percent from May to June. At the same time the proportion fixed for a year increased from 37 percent to 38 percent and the portion fixed for 18 months increased from 15 percent to 16 percent.
Of fixed lending alone, the proportion fixed for six months fell from 22 percent to 19.5 percent.
Those who chose a 12-month term will have watched retail rates fall from about 7 percent for a one-year fix in May to as low as 6.45 percent advertised now.
Gareth Kiernan, chief forecaster at Infometrics, said there could be an element of "twice bitten, thrice shy" for borrowers who decided not to take the risk of a shorter fix.
"Given the previous falls in mortgage rates in August and September 2022 and February through May 2023, where if they'd believed financial markets, or anyone who wasn't an economist, we'd reached the peak in rates and the emerging falls were the start of better times ahead - only for the Reserve Bank to - rightly - maintain tighter monetary policy. Third time around, should you believe financial markets who seem to go off on massive runs because this week's data has come out weaker than expected, or the Reserve Bank that sets the rate and still seemed to be involved in a battle to get inflation back to 2 percent before they'd believe they'd won the war?"
Deputy Reserve Bank Governor Christian Hawkesby told media that the OCR track was "overanalysed" without enough recognition that it was based on a set of assumptions.
He said the record of the meeting should be the focus rather than the OCR track.
But Kiernan said if the bank had not mentioned that a rate increase had been considered in May, people would not have read so much into the track.
"Essentially they need to get better at looking forward, and get better at communicating a consistent message rather than chopping and changing every meeting.
"As it stands, their heavy reliance on current and recent data puts them in a position where they risk being too influenced by the volatility of month-to-month data - kind of like financial markets have been at times with US CPI data being low one month and high the next, or similar with US payrolls data.
"A central bank needs to be charting a course through the middle of that volatility as best they can, not being blown around by every different gust of wind that comes along. The bank obviously needs to retain the right to change its mind, but it should be considered and carefully thought about, rather than being overly reactive to variable conditions."
He said banks did not publish their forecasts a decade ago but changed the approach because it was thought to be better to publish exact, but wrong forecasts, than vague but wrong ones.
"They haven't adequately communicated the uncertainties around their projections, although even better communication wouldn't help with how badly they seemed to misread the economic outlook in May."
NZIER chief economist Eric Crampton said one lesson could be to closely watch the survey of inflation expectations.
"The August MPS showed greater confidence that inflation expectations had re-anchored to the 2 percent midpoint of the target window. The faster expected track for inflation returning close to midpoint would have increased bank confidence that it could ease rates more quickly.
"But the August MPS may already be out of date. The extent of the current energy price shock is unlikely to have been in the August forecasts. That shock has already hit output and potential output, with factories shuttering in response to high energy prices. I don't envy the bank's forecasting team."
Mortgage adviser Jeremy Andrews, of Key Mortgages, said he had been advising clients to hold off as long as possible before fixing.
"It seems almost every day lately one of the banks or other lenders is dropping their rates. We can often get other banks to then match or sharpen up their pricing. Sometimes floating for a few days pays off if that means getting a rate that's five or 10 basis points better.
"Nobody can predict exactly what will happen, so best you can do is talk to an adviser who sees both advertised and 'below the table' non-advertised rates movements every day. They can help share some knowledge of what's happening then from that you can make a plan on what refix strategy to use."
