Retail banks have begun responding to today's official cash rate hike with moves to lift variable savings and borrowing interest rates.
But despite the Reserve Bank lifting the rate by 50 basis points to three per cent and shifting its forecast peak to 4.1 per cent (from 3.95 per cent),fixed mortgage rates are not expected to rise much further.
That's because debt markets have the movements for the next 18 months priced in.
Kiwibank was first to announce doing a full pass-through of the 50bps - to its Online Call and PIE Online Call saving accounts.
But it left fixed rates and term deposit rates unchanged.
"In terms of the direct impact on the housing market from today's decision, it wouldn't be a surprise if it's pretty minimal," said Kelvin Davidson Chief Property Economist at Core Logic.
"For a start, the upwards path for the OCR has already been 'priced in' to current mortgage rates, at least the shorter-term fixes."
Secondly, reduced pressure in wholesale offshore funding costs would also likely cap the pass-through to mortgage rates here, he said.
"Third, with fewer property transactions taking place (hence less new lending), there's a lot of focus in the banking sector on existing borrowers and keeping market share."
This would also be playing a role in putting the brakes on mortgage rate increases, and in fact the outright cuts in borrowing costs that we've seen in recent weeks, he said.
Reserve Bank Governor Adrian Orr. Photo / Mark Mitchell
The RBNZ today warned that domestic inflationary pressure was still high and underlying inflation was still rising. It expected to see inflation back in its target range of 1-3 per cent by mid-2024.
It forecast house prices to fall by 15 per cent.
"The central projection assumes that prices will continue to decline until the September 2023 quarter," the RBNZ said.
"This would result in a total decline of 15 per cent from the December 2021 quarter peak, slightly more than assumed in the May Statement."
"Lower house prices and higher mortgage rates are assumed to result in weaker household spending, as households feel less wealthy and more of their incomes go towards servicing their debts."
The two-year swap rate - which has an influence on fixed mortgage rates - did bump up on the more hawkish than expected forecasts.
Few in the market - apart from ANZ - were predicting a lift in the Reserve Bank's OCR forecast track to 4.1 per cent.
"It surprised most people in the market and, as a consequence, you have seen the two year swap rate move up six basis points to 3.995 per cent," ANZ strategist David Croy said.
"It was not a large reaction but we certainly have an acknowledgement from the Reserve Bank that it still has a job to do," he said.
ANZ is picking two more 50 basis point moves in the OCR - one in October and the other in November.
