The New Zealand Government has jumped on the bandwagon, preparing us for the likelihood that the country has slipped into a double-dip recession.
Hard data for the second half of last year have not yet emerged and apparently will not do so until next month. Presumably an early indication is
assessed as softening the blow and being less politically damaging to the Government.
Will the hard data confirmation be enough for the Reserve Bank to reduce the official cash rate - who knows?
Has the reduction in activity in the economy been sufficient to overcome the fear of inflation? I believe it should be, as any current inflationary pressures are being driven by factors resulting from adverse weather patterns, natural disasters or Opec greed - oil prices - rather than increased activity in the economy.
Greater activity/demand allows prices to increase, which is inflationary.
The Reserve Bank's next opportunity to review the official cash rate is March 10. That will be accompanied by a monetary policy statement on the state of the economy and the assumptions/projections supporting the bank's stance.
You will have noted that in the last month the United States sharemarket has been slowly improving - largely on the back of more consistent signs of recovery in their economy.
Longer-term interest rates have increased quite a bit and these can influence medium to longer-term fixed rates here. We are observing these with a watchful eye.
Short-term uncertainty about New Zealand's recovery is, to a degree, offsetting any upward pressure and if the double-dip recession is confirmed, that should reinforce this position.
Because of this near-term uncertainty, the financial market is not pricing an increase in the official cash rate until the October 27 review.
Therefore we can expect a low variable home loan rate for several months yet.
The outlook for the medium to longer-term fixed rates is less clear. However, the pressure is, if anything, upward. It's just the timing that is uncertain.
When rates move up or down it's generally in reasonably small increments so even if you miss the first move, all is not lost.
While it appears there's no rush to fix at the moment, some people may want certainty in their interest rate mix. If so, a portion of debt on the two-year fixed rate should provide a reasonable comparative result across that period.
- Brian Berry is a mortgage adviser with Rothbury Financial Services
