KEY POINTS:
Treasury expects higher long-term interest rates in the United States are likely to lift long-term fixed mortgage interest rates here.
In its Monthly Economic Indicators for July, Treasury said the higher rates would apply more pressure on the housing market and consumption.
Last month, the Reserve Bank lifted the Official Cash Rate by quarter of a percentage point to 8.25 per cent as it tries to hold inflation in check.
At the time, Reserve Bank Governor Alan Bollard hinted the latest of four successive rises could be the last.
With higher interest rates due to international factors, Treasury said the outlook for the New Zealand economy was weaker in the second half of this year. The median housing sales price had eased slightly in June and other data supported the view that the housing market was easing.
Annual net migration inflows had fallen recently, reducing pressure on the housing market.
At the same time, there was a movement towards higher interest rates globally as inflation pressures remained high or intensified in major economies. Those higher international interest rates were supportive of the tight monetary policy in this country.
"Higher long-term rates in the US are likely to support higher rates here, lifting long-term fixed mortgage interest rates and applying more pressure on the housing market and consumption," Treasury said.
Higher short-term interest rates overseas would also lower the interest rate differential between this country and other markets, taking some pressure off the New Zealand dollar.
- NZPA
