NZ Interest Rates Forecast…
Will Interest Rates Go Up?
How likely are interest rates to go up in the near future? Here’s why we predict a NZ interest rates forecast of continued low rates, marching towards zero.
NZ Interest Rates Forecast – Executive Summary
- Low interest rates are not a short-term aberration, but part of a long-term trend says Ben Bernanke, ex-Chair of the Federal Reserve.
- The Reserve Bank influences interest rates within a small band, but has less control over interest rates than many imagine.
- If the Reserve Bank drove interest rates artificially high, the economy would slow, leading to recession. Not going to happen.
- If they drove interest rates artificially low, the economy would overheat, leading to inflation. That’s not going to happen either.
- Instead, they dance in the middle, tweaking rates up or down a little within a narrow band.
- Interest rates are primarily driven by inflation. Where inflation goes, interest rates follow.
- Today’s low bond yields simply reflect economists’ and investors’ expectations that inflation will remain low.
- Globalisation, offshore manufacturing and increased competition are keeping prices, and therefore inflation, down.
- With inflation lacking, markets are pricing out inflation and yields are falling as a result.
- Central bank interest rates in Switzerland, Sweden and Japan range from -0.75% to -0.1%, and the Eurozone rate is 0% (Global-Rates). New Zealand is currently 1.5% (RBNZ).
- With the odd small blip upwards, our NZ interest rates forecast is for interest rates to continue their march towards zero.
- Where interest rates go, mortgage rates follow.
- In our opinion, you’re more likely to see leprechauns than a return to high mortgage rates in the foreseeable future.
- N.B. Olly says all predictions expire at midnight 😉