Westpac economists have renewed their advice to home borrowers to fix their mortgage interest rates now because interest rates can only rise from here as the Christchurch rebuild starts putting inflationary pressure on the economy.
Westpac's chief economist Dominick Stephens says fixed interest rates for terms of two to four years make most sense, but his counterpart at the ANZ Bank, Cameron Bagrie, says it's still too early to call, with risks to economic recovery outweighing the impact of a Christchurch-driven building boom.
The difference boils down in part to expectations about the timing of any increase in the Reserve Bank's official cash rate, which is currently at a historic low of 2.5 per cent and is not expected to fall any further, even if the European debt crisis triggers another global financial meltdown.
While the Reserve Bank is expected to leave the OCR untouched at its quarterly update next Thursday, Westpac sees the rate rising by the end of this year, and heading up more sharply than many financial market participants expect. That's based on an expectation the construction industry will struggle to meet demand, fuelling inflation in 2013 and 2014.
The Overnight Swap curve sees 23 basis points of increases in the OCR over the next 12 months.