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Interest rates – up – up and away

One of the weird things about being human is that when things are good, we think things will always be good, but when things are bad, we seem to think things will stay pear shaped.

Interest rates are at an all time low. The base official cash rate (OCR) is at 2.5% and you can get a floating mortgage at rates below 5%. For a borrower, the past few years have been great but don’t think life is going to stay this way forever. The wind of change is blowing and borrowers and investors need to take heed.

Researchers are highlighting a move back to higher interest rates in New Zealand.  In particular, analyst’s expectations that the Reserve Bank of New Zealand (RBNZ) will initiate an increase in the OCR of 0.25% to 2.75% in March 2014. This is then expected to be followed by two additional 0.25% increases over the course of 2014, with the OCR ending the year around the 3.25% level.

 In contrast, the expectation is that the Reserve Bank of Australia (RBA) will undertake an additional 0.25% cut to their OCR in August this year and for their cash rate to remain unchanged at a historic low of 2.5% until the December 2014.

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The impact of this will be increasing interest rates in New Zealand and a probability of a stronger New Zealand dollar against our major trading partners.

Forward planning is vital. If you have a mortgage and you want to take out a bit of the interest rate risk, now is the time to be getting advice. If you are investing in Australia, you need to understand the likely impact of these economic drivers.

Check out the market mortgage rates or the currency charts on the homepage of our website at wealthdesign.co.nz.  Then give us a call to help guide you through the changes.