Economics has long been known as "The Dismal Science" but currently it is anything but dull thanks to Trump.
Short term fixed rates continue to fall, albeit at a slower pace. The one year rate now sits at 4.99%. However the longer fixed rates have stalled with the 3 year plus rates remaining well over 5%. A major cause of this is events overseas where NZ banks borrow some of their funds. Because while NZ has inflation very much under control the same can not be said for the US. There is real concern that tariffs will increase inflation in the US and that US interest rates will need to remain high.
However the tariffs that Trump announced last month were higher and wider than expected. If implemented they could cause a global recession as international trade is reduced. Such a recession should tend to reduce inflation pressures and hence reduce interest rates as well. Thankfully in recent days the US and China have agreed reduced tariffs.
But just the uncertainty alone that Trump is causing will slow business investment as they wait to see the results of his actions. This in turn should reduce inflation and rates and could see lower mortgage rates both overseas and here. It would of course have consequences for the NZ economy and unemployment as well.
There seems little doubt that the 6 and 12 month rates will go lower and probably the 18 month rate as well. However its not clear how much further the 2, 3 and 5 year rates will fall. Some economists do not see these rates falling much further, but with Trump in The White House its hard to know!
The next RBNZ rate announcement is about a fortnight away on May 28th and will probably bring a further 0.25% cut in the OCR. Hopefully that will feed through to the 6 and 12 month rates, perhaps the 2 year rate as well. And over the next 6 months we will be looking to see where the interest rate cycle bottoms out and especially how those longer rates react to events both here in NZ and overseas.
Please do not hesitate to get in touch to discuss your own situation. And if family or friends need advice on a new or existing mortgage, they are welcome to give me a call.
