ASB senior economist Mark Smith said short term rates could fall over the next 12 months. Photo: RNZ / Marika Khabazi
Retail bank lending rates are on the move again with ASB raising short term housing loans but dropping its longer term mortgages.
Its five-year home loan rate has been reduced to 6.49 percent which unusually puts it lower than its one-year rate of 6.84 percent.
ASB senior economist Mark Smith said whether borrowers found the longer term rates attractive would depend on their personal situation.
"Those short term rates now are high, but the expectation is that they will fall, so it will depend on the preferences of the borrower and if they want certainty or not," he said.
Smith predicted central banks will move proactively by doing more now to cool inflationary pressures, leaving less to do later on.
"We've got an inverted yield curve so those longer term rates are much lower than the short term rates," Mr Smith said.
"We've seen of late signs of a wage price spiral eventuating and becoming more pronounced in the New Zealand context. Central banks will need to lean harder into that in the short term which will provide some cuts for later on."
What is likely to happen next, according to Mr Smith, is that short term rates may see some cuts over the next 12 months or so.
"It really hinges on the inflation outlook," he said.
"Given inflationary pressure has been elevated in a number of economies, the expectation now is that recession conditions will be encountered by a lot of economies globally and in New Zealand as well.
"The expectation is central banks will be successful and inflation will cool over the longer term period and that is what is really holding down those interest rates over the longer term interest rates."
"The future is inherently uncertain. This is what the market is expecting for now but that can change in a few months time."