Higher and higher | interest.co.nz

Wholesale exchange rates are getting new energy to grow significantly higher, even on top of recent large increases. This fire is now ablaze

New Zealand swap rates rose further on Wednesday. The ascent does not relax.

This will have strong implications for fixed mortgage interest rates – even if they have just increased over the past week.

But Wednesday’s big jumps clearly mean more hikes are on the way.

To put the hikes into perspective, the increase in wholesale swap rates had already been incorporated into the Reserve Bank’s official exchange rate increase on October 6. on the indication that the RBNZ had committed to more increases. The two-year swap increased by +25 basis points, and the three years by a similar amount over those 12 days.

Then, the surprise result of the CPI generated a sharp jump, which until today (still 9 days) increased the 1-year swap by +25 bps, the two-year swap by +10 bps and the three years of +15 bps.

Now, just today, the one-year swap is still up +10 basis points, the two-year +12 basis points and the three-year another +14 basis points.

Local market demand is fueled by self-fulfilling forces as borrowers rush to set current levels. But now the third quarter Australian CPI data is higher than expected, especially the core CPI. Plus, the Woolworths grocery giant reported relentless cost pressure through their system which will be passed on.

Face it, if supermarket shoppers can’t avoid cost increases, no one will have the power to resist. And that only fuels the fire of rising CPI and interest rate expectations.

The bottom line: Prepare for bigger hikes in fixed-rate mortgage rates, and soon.

(And term deposit rates will follow too, perhaps with a lag.)

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