On top of this, the banks have seen their margins increase. This is partly because mortgage interest rates have risen faster than term deposit rates.

Issue #54

That increase in margin allows the banks to decrease their mortgage interest rates sooner than the Reserve Bank wants.

And that’s why the central bank has surprised us.

If they only increased the OCR by 0.25% (as expected) … they’re worried that:

– mortgage interest rates will fall too soon,

– that we’ll start spending more,

– and that inflation will stick around for longer.

#3 – What will happen to interest rates? (interest rate projections)

Here at Opes, we’ve predicted that the 1-year mortgage interest rate will hit 7% in April.

If you compare that to ANZ’s most recent forecast … they suggest that interest rates have already peaked at around 6.6%.

We’re sticking with our 7% projection for the 1-year rate. And are not changing this projection based on yesterday’s hike.

And that’s because while the Reserve Bank surprised us with its increase … the endpoint is still the same.

The Reserve Bank expects the OCR to peak at 5.5% later in May. That’s the same as what they’ve been projecting for the last 4.5 months.

The endpoint hasn’t changed. We’ll just get there faster than first thought.

And because of this, I’m not expecting a significant jump in interest rates.

But of course, that’s all based on the current data I have available today. New inflation data comes out in 2 weeks. That data will influence what happens to interest rates over the next year.

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Andrew Nicol

Managing Director, 20+ Years' Experience Investing In Property, Author & Host

Andrew Nicol, Managing Director at Opes Partners, is a seasoned financial adviser and property investment expert with 20+ years of experience. With 40 investment properties, he hosts the Property Academy Podcast, co-authored 'Wealth Plan' with Ed Mcknight, and has helped 1,894 Kiwis achieve financial security through property investment.