Fixed mortgage rates look set to fall as financial markets adjust to moves being made by the Reserve Bank, Westpac chief economist Dominick Stephens said.

Stephens, addressing the New Zealand Shareholders Association annual conference, said markets were still coming to terms with the approach taken by Reserve Bank Governor Adrian Orr, who has been in the top job since March.

Two-year fixed mortgage rates remain below five per cent across the major banks, and this looks set to continue with the latest predictions.

Homeowners set to renew their mortgage agreements in the coming months, could be set to benefit from even lower rates.

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Early this month, the central bank kept its official cash rate unchanged at 1.75 per cent - as expected - but surprised the market by saying it expected to keep the rate there through to 2020.

Even then, the next move could be up or down, the bank said.

The statement was widely viewed as being "dovish" - or less aggressive on inflation - and precipitated a sharp fall in the New Zealand dollar, which has remained weak.

"Financial markets are still digesting this news about the governor's attitude," Stephens told an audience of around 400 people at the Ellerslie Convention Centre.

"They have just sent wholesale fixed interest rates down a long way and that is currently causing a substantial drop in fixed mortgage rates," Stephens said.

Westpac chief economist Dominick Stephens told the NZ Shareholders Association annual conference that like many other economists, he has had to adjust his ideas about what may lie ahead. He now sees a possibility of a rate cut within the year. Photo / File
Westpac chief economist Dominick Stephens told the NZ Shareholders Association annual conference that like many other economists, he has had to adjust his ideas about what may lie ahead. He now sees a possibility of a rate cut within the year. Photo / File

Like many other economists, Stephens has had to adjust his ideas about what may lie ahead after the Reserve Bank's statement. He now says there is a possibility of a rate cut within the year.

"There is a one-in-three chance that the official cash rate will fall over the coming year. If it does not fall, I think it will be a long time until it rises," he said.

Stephens added that Orr would not be as likely to lift rates as readily as his predecessor, Graeme Wheeler.

He said developments in technology had suppressed inflation and kept retailers from banking fat margins.

"For that reason, I don't think the Reserve Bank is going to lift interest rates for a very long time indeed."

"I think the new Governor is more dovish than his predecessor - he is more likely to want to shore up growth and is less likely to jump on the first signs of inflation."

Elsewhere in his presentation, Stephens said recent business confidence surveys had portrayed a picture of the economy that was too pessimistic. His view was that the economy was more "mixed" rather than "desperately negative".

Economic growth in 2019 will be better than the current year as the full impact of increased Government spending starts to kick in, he said.

The economy has slowed from the heyday of 4 per cent annual GDP growth over 2014-16 but the outlook from here was "not all doom and gloom".

Stephens said bright spots included the booming tourism sector and an already strong export sector that looked likely to get a further boost from the sharp fall in the New Zealand dollar.

In his address, Finance Minister Grant Robertson quoted recent comments from Sky City chairman Rob Campbell that "overall, New Zealand remains a good place to do business".

"The fundamentals of the economy remain very strong indeed," Robertson said, adding he expected growth to average 3 per cent per annum over the next three years.

"We see a slight slowdown from what we have seen over the last few years but it will build back up through 2019 and 2020," he said. "The stock market is on a solid upward trend and there has been good earnings data in recent weeks," he said.

"In this era of confidence and confidence surveys, it pays to look at what is happening in the real economy," he said, pointing to strong earnings reports from clothing retailer Hallenstein Glasson and ASB Bank.

Robertson expected the trend of strong earnings data to continue throughout the current reporting season.

Global instability was "something to keep an eye on" but that it was not yet having a dramatic effect on the New Zealand economy.

Robertson said that the tax working group - headed by former finance minister Sir Michael Cullen - is due to issue its interim report in September and will submit its final report in February.

The Government has said any proposed legislative changes arising from the group will not come into law until 2021 - past the 2020 election - enabling the electorate to have the final say.