Fixed mortgage rates may have peaked

PHOTO: Kiwibank believes the official cash rate could start to fall within a year.

According to STUFF fixed-term mortgage rates and other fixed interest rates may already have peaked, according to Kiwibank’s forecasts.

The Reserve Bank is assuming the official cash rate will climb to 4% next year, up from 3% now.

But banks have been pricing-in some further upward movement in the OCR into their lending rates, and Kiwibank said in a research note on Monday that it believed the market was “perfectly priced, for now”.

The bank said it expected commodity prices and shipping costs would “continue to decline into 2023”.

It is forecasting that slower price rises for imported goods will cool down domestic inflation and said economic growth was also slowing.

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“If our forecasts are realised, the Reserve Bank may be in the position to start lowering interest rates in the second half of 2023,” it said.

Kiwibank predicted the housing market would be “better balanced” in future, as a housing shortage disappeared over the next 12 months and the housing market then moved into a new era where demand and supply were more in sync.

Fears of spiralling inflation have given way to concerns over recession amongst some economists, amid a collapse in consumer and business confidence over the past few months.

But there are signs sentiment is starting to stabilise, with global sharemarkets now well off their year-lows.

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Kiwibank is forecasting a “soft landing” for the economy, but said the risks were “certainly tilted towards a deeper correction”.

Jobs data released by Stats NZ on Monday meanwhile suggested the labour market might be heating up again and showed the difficulties facing economists as they try to pick point where interest rates may turn.

Stats reported that the number of people in filled jobs rose by 0.5% to 2.31 million in July, after falling 0.4% in June.

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ANZ, which has been more hawkish in its outlook for interest rates than other banks, said the stronger-than-expected seasonally-adjusted jobs numbers were “unwelcome from an inflation-targeting point of view”.

“The labour market is highly inflationary and the Reserve Bank needs to see things cool off significantly to be confident that domestic inflation pressures will drop,” it said.