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01 Jun 14

INTEREST-ing

It’s always flattering to be invited to breakfast with Westpac’s Chief Economist… even if you’re one of 200… because  of all the economists  out there (and some of them are absolute nutters), Westpac  seems to always score the best.

What I’m trying to say is that I agree with Dominick Stephens, their Chief Economist, so they must be right.

We covered the NZ economy and its capacity for growth, the NZ dollar, the global economy, the agricultural outlook, two pages of disclaimers (slightly taking the shine off my increasing  enthusiasm) but most importantly… for all of us… interest rates forecast.

The official cash rate peaked at about 8.2% in 2008 then freefell to 2.5% all in one year, 2009. Pretty courageous stuff and it worked to the effect that NZ came through the global financial crisis in a very protected mode compared to almost all competitors. As a rule of thumb – to make sense of all this -  add 2.5 % to the OCR for the retail banks’ margin and you have prevailing mortgage interest rates.

Now comes the ‘interesting’ bit.

As opposed to the panic pundits, Mr Stephens is predicting multiple quick jerks to the OCR between now and 2017 with a peaking at 5.25%  and then a gradual softening again.

He has already adjusted the “peak’ down from 5.5%.

This presumes (in my speak) a peak mortgage rate of say 7.75% dropping to maybe 7% 2019 and heading south. Which won’t break anyone’s bank, hopefully.

Of course the Greens might win in which case this is all really academic.

By Martin Dunn

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