Sweet comfort for now

I can almost hear all those people sitting on floating or short-term mortgage rates breathing a sigh of relief after today’s official cash rate (OCR) announcement.

The governor of the Reserve Bank, Alan Bollard, decided to leave the OCR unchanged at 2.50% and more importantly he reiterated his line – the line the markets don’t believe – that OCR increases are not likely until the end of next year.

Yes that is sweet comfort in the short term, but the medium to long term looks increasingly unpleasant.

Two comments Bollard made today are well worth noting. One is that he has removed the possibility of further rate cuts. As readers will recall, in his previous statement he made the enticing comment rates could yet be cut further.