KEY POINTS:
Homeowners appear unlikely to get relief from high interest rates this week, with a leading economist predicting the risk of inflation will need to be "unconscious on the mat" before the rate will come down.
The Reserve Bank will make an announcement on Thursday whether it will hold, raise or lower the official cash rate (OCR) from 8.25 per cent, where it has been sitting since July.
Lowering the rate would bring down borrowing costs, but economists say inflationary pressures are still too high for the bank to relax rates just yet.
On Wednesday, the ANZ National Bank increased the pain for borrowers by raising its two-year fixed rate to 9.7 per cent and its three-year fixed rate to 9.55 per cent. ASB followed the next day, lifting fixed and floating rates by 20 basis points. Both blamed the rise on the high cost of borrowing overseas.
But BNZ chief economist Tony Alexander said New Zealanders had only themselves to blame for high interest rates, with our penchant for spending tending to push the cost of borrowing higher than other developed countries.
He predicted the current rate would hold until December.
"We're the masters of our own misfortune because we like to borrow a lot and we are prepared to pay interest rates to borrow money that people overseas would not touch with a barge pole," he said.
"It's not until you get the likes of two-year fixed housing rates at about 8.5 per cent [that] the housing market in New Zealand corrects downwards."
ASB chief economist Nick Tuffley agreed, saying New Zealanders' "pain threshold" for interest rates was higher than other countries. "As a nation, we put a heavy weight on consuming now rather than saving to be able to consume later."
Tuffley, who predicted interest rate cuts late this year or early 2009, said we would see a contrast between interest rates here and in Australia, where a stronger housing market was likely to see the Reserve Bank there lift rates to slow inflation.
At 8.25 per cent, our OCR seems to have put even consumption-happy Kiwis off spending, with signs of a slowing economy making further rate hikes unlikely.
But in a written report last week, Alexander warned the Reserve Bank would be wary of repeating past mistakes by easing monetary policy too early.
He suspected the central bank would want to see inflation "unconscious on the mat" before they lower the OCR.
With the OCR unlikely to change, all eyes will instead be on the central bank's monetary policy statement, also due out on Thursday. If the bank hints it will not make further hikes, the New Zealand dollar is likely to fall, spelling good news for exporters. The kiwi stung them last week by hitting a 23-year high of US82.13c against a weakening greenback.
Alexander, who predicted the Kiwi dollar would hit US85c before it dropped, said there were signs the Reserve Bank would be less hawkish in its outlook than last time.
"As the markets adjust to realising interest rates won't go up again, that will put downward pressure on the kiwi."
"The factors are building for our currency to have a significant downward movement further down the track."
He said those wanting to spend US dollars in the next year had best do so now. "The kiwi has got upward momentum at the moment but you've got to say, at near 82c, our currency is stretched. Don't be greedy looking for the last 3.5 cents or so."
