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ASB Bank: Variable Mortgage Rates Should Rise

Statement made by Anthony Byett, Chief Economist, ASB Bank

Variable mortgage interest rates should rise further than the 0.25% rise in the Official Cash Rate announced by the Reserve Bank on Wednesday.

The 90 day-bank bill rate, which sets the pricing of variable mortgage interest rates, has risen by just over 0.5% over the last 2 months. This means the variable interest rate charged by major banks should realistically move to around 7.2% p.a. from its existing 6.70%p.a.

However, it is difficult to see banks moving by such an extent given the lesser increase in the Official Cash Rate, but they are likely to settle somewhere between the two points.

Some moderate dampening of housing market confidence can be expected as a result of these and pending future interest rate increases, although the effects may be difficult to gauge given that housing market activity seasonally declines post-Easter in any event.

Fixed term mortgage interest rates have now broken through the 7.00% p.a. barrier, but still remain low by historical terms.


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