The Reserve Bank will update the official cash rate on Wednesday afternoon. Photo: 123RF
Market movements in response to US tariffs make the prospect of a 4.5 percent home loan rate being offered in coming months much more likely, one commentator says.
Stock markets around the world have been reeling from the announcement of tariffs and wholesale interest rates have also fallen significantly in recent days.
David Cunningham, chief executive of mortgage advice firm Squirrel, said swap rates - one of the factors driving what banks charge borrowers - had fallen 20-25 basis points.
"The one-year, which I watch closely, was around 3.5 percent and now it's down about 3.15 percent," he said. "The two-year was hovering around 3.4 percent or 3.5 percent, and now it's down about 3.2 percent.
"Globally, interest rates have fallen, because everyone is bailing out of equities into the safe haven of US government stock and US government stock is down, which drags the rest of the world down."
Economists were united in a view that trade tariffs would dent global economic growth, bringing interest rates lower than they might otherwise be, he said.
"Markets weren't pricing in many more interest rates cuts in some parts of the world, like Europe or the US, but now they are pricing another percent more to come off."
Markets were now pricing in the potential for a 2.75 percent official cash rate in New Zealand, whereas previously, they had expected more like 3.1 percent to be as low as the Reserve Bank would go. It will update the OCR on Wednesday afternoon, with an expected drop from 3.75-3.5 percent.
Cunningham said, as long as rates stayed lower, it would lead to lower rates for borrowers.
"Retail rates will probably drift down by a similar amount. We're only talking 25bps on where things were, but it validates the two-year 4.99 percent rate - they were at tighter margins than things have been.
"What's going on means the probability of 4.5 percent [home loan rates] in the next six months is back on the cards. Before, it was probably 4.75 percent.
"All this stuff makes the probability of a 3 percent OCR much higher than it has been. The possibility of a 4.5 percent [home loan] one or two-year rate is more likely than it was two weeks ago."
BNZ chief economist Mike Jones said the tariffs were likely to delay New Zealand's economic recovery. What happened for home loan rates would depend on where wholesale rates settled.
"We've also got the Reserve Bank meeting and we're waiting to see what tone they strike," he said. "The risk is the guidance is a bit more downbeat than it would have been, but the Reserve Bank is as in the dark as the rest of us.
"Markets may continue to toy with the idea of a lower terminal cash rate. It now seems to be settling sub-3 percent.
"It's all a bit hand wavy at the moment."
