Borrowers who have not fixed face challeges

In this week’s BNZ Weekly Overview, chief economist Tony Alexander says that while 90-day bank bill yields remain near 2.8%, further out on the wholesale yield curve rates are continuing to creep higher.

“These rises, which have been underway since March in stop-start fashion, reflect increasing expectations of the Reserve Bank raising their cash rate far earlier than the late-2010 period they have indicated,” he says.

Stronger than expected economic data; a higher than forecast Consumer Price Index rise in the September index; and early policy tightening across the Tasman have all bolstered this.

Alexander says its view remains that the first hike will come in the middle of next year, due to inflation being suppressed by the rising NZ dollar and spare capacity in the economy. However, the risk is that it moves earlier, he says.