New Zealand homeowners could face renewed pressure on longer-term fixed mortgage rates as rising global interest rates push up wholesale borrowing costs, despite inflation easing in the United States.
Kiwibank economists say New Zealand remains heavily influenced by international financial markets, particularly movements in US bond yields and longer-term interest rates. When those rates rise, New Zealand wholesale swap rates can follow, increasing the funding costs that ultimately influence fixed mortgage pricing.
The bank says longer-dated interest rates have risen sharply around the world, with US rates reaching their highest levels in around 25 years. In New Zealand, the difference between two-year and 10-year government bond rates has widened from about 100 basis points in May to 120 basis points.
That creates a complicated picture for Kiwi households. Domestic interest rates may be influenced by conditions here at home, but longer-term mortgage rates are also exposed to international markets, meaning developments thousands of kilometres away can ultimately affect what whānau pay on their home loans.
Kiwibank says the New Zealand labour market is showing some signs of stabilising, with filled jobs rising again in September. However, regional differences remain significant, while the latest Treasury forecasts indicate unemployment and inflation are expected to remain higher for longer than previously forecast.
The weaker New Zealand dollar is providing some support elsewhere in the economy. The Kiwi has fallen below US56 cents, which can make New Zealand exports and tourism more competitive internationally, although a weaker currency can also affect the cost of imported goods.
For mortgage holders, the message is that movements in the Official Cash Rate are only part of the story. Global bond markets, international inflation expectations and wholesale funding costs will continue to play an important role in determining where longer-term fixed mortgage rates head next.
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