Banker predicts interest rates will fall next year

8.15am

Dr John McDermott, chief economist at National Bank, has predicted interest rates will rise this year and fall back next.

He made his prediction after the bank's business outlook survey showed confidence edged higher this month.

Dr McDermott says their own activity indicator points to the economy growing at between 2.5 to three per cent in the next 12 months.

And he is relaxed about the general direction of interest rates, Newstalk ZB reported.

Dr McDermott said the higher rates go this year, the sooner they will come down next year.

He said the confidence survey shows businesses' pricing intentions have risen sharply, which means inflation will rise and in turn will push up interest rates.

But he says many people locked themselves into fixed mortgages when rates were low, and the effect of higher rates will be sudden.

He says that when those fixed mortgages start to expire, households will be hit with higher debt costs, which will slow consumer spending.