During 2014, interest rates dropped and remained at record lows. The Reserve Bank has suggested that they will begin to raise them this year, but many financial advisors have predicted that they will stay the same. So what will 2015 really bring for interest rates?
The Official Cash Rate, currently 3.5%, is set by the Reserve Bank in order to help control inflationary pressures. With the desired rate of inflation between 1-3%, any great rise or fall sets in motion a change of the OCR, which has a flow on effect on our interest rates.
Interest rates predicted to remain the same
The quarter to December saw inflation drop to 0.8% due to a reduction in fuel and some food prices. Because of this, some financial advisors are suggesting that the Reserve Bank will not alter the OCR during 2015, meaning that interest rates will remain the same. In fact, Westpac Chief Economist Dominick Stevens suggests that the OCR will remain the same until March 2016.
But the question asked by some, will the OCR be lowered in order to help boost the economy and our very low level of inflation? Mr Stevens believes that the Reserve Bank will state that the low level of inflation is transitory due to extreme one off low fuel prices and in fact the booming house price issues and population growth will soon see inflation begin to rise again.
Will there be an interest rate war?
On the other hand though, some financial advisors have suggested that even if the OCR remains the same, there will be a significant lowering of interest rates around the country. Mortgage lenders are currently battling for new business with cash incentives and low long term fixed interest rates being offered.
Already the five year fixed term battle is heating up, with rates between 5.5% and 5.95 fixed for five years being offered by some major banks. But at this stage it looks as though the shorter fixed term rates will not be lowered further, as the rate banks borrow money at has not dropped enough.