Kiwibank raises rates after OCR hold

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Kiwibank has raised the limit of its capped variable mortgage rate, suggesting it expects the Official Cash Rate to be hiked by Reserve Bank Governor Alan Bollard soon.

Kiwibank's capped rate, which is generally for a term of a year, means borrowers are put on the bank's variable, or floating mortgage rate (currently 5.65 per cent), and while the basic variable rate may rise over the year, the borrower's rate would not pass above the capped rate limit in those 12 months.

After the year-long term, the borrower would be placed on the bank's variable rate at the time.

The limit was raised by 25 basis points to 6.5 per cent.

The move follows indications from Bollard yesterday that he may hike the OCR by 50 basis points on September 15, to remove the central bank's 'insurance' rate cut from 3 per cent to 2.5 per cent in March following the February 22 Canterbury earthquake.

'Wait and see on fixed rates'

Kiwibank Market Manager for home loans Peter Lowe said the risk of OCR increases had been brought forward following yesterday's statement from the Reserve Bank.

"Generally people are trying to hedge their bets after yesterday's announcement, as I think the Reserve Bank was, in saying that, subject to X, Y and Z, we might not need the 'insurance,' but even after that further increases are going to be slight," Lowe said.

"So that increase (in the limit) for us really more indicates for us that it means one year out from now, it does look more likely than not that we're at least going to see some hikes in line with that," Lowe said.

"The actual timing of them we wouldn't want to commit to, other than what people have been talking about yesterday would tend to be in line with what we're all thinking," he said.

In terms of its other mortgage rates, Kiwibank would wait and see what happened in the wholesale interest rate market over the coming weeks, particularly in response to what was happening internationally.

"We've got unemployment data due out in a couple of weeks as well, so that's going to affect [rate moves]," Lowe said.

"I think ourselves and other banks are just waiting and seeing how what the Reserve Bank said is going to key into what's going to happen in the market in the next couple of weeks as well, before we consider what we need to do (with fixed rates)," he said.

"If we sit around current levels, we'd probably wait to see how sustainable the increases (in wholesale markets) have been, or if there's any move beyond that as well."

- INTEREST.CO.NZ