Inflation keeps rising,Fed rate rises expected sooner,are property investors ready?

As the world's largest creator of monetary liquidity, even the slightest move by the Federal Reserve can have a major influence on central banks' future monetary policies and global financial markets.

 

We have identified two key points from this meeting: The first is that the Fed could announce a reduction in asset purchases as early as its next monetary policy meeting in November. To address the economic crisis brought on by the pandemic, the Fed previously announced monthly purchases of US$120,000,000,000 in Treasury bonds and mortgage-backed securities to increase market liquidity. This monetary easing was precisely what drove up global share markets and commodity prices. Now, as the pandemic eases, inflation rises and employment recovers, ending this stimulus is understandable in light of these positive factors. In our view, this is a very strong tightening signal for global markets. Investors, take note! The other key point is that the Fed further reinforced expectations of interest rate rises. The Fed's dot plot shows that the number of officials supporting at least 1 rate rise in 2022 increased to 9 (up from 7 in June), representing half of all officials. The number supporting at least 4 rate rises by the end of 2023 increased to 9 (up from 5 in June). Only 1 official supported keeping rates unchanged through the end of 2023 (compared with 5 in June).

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So what direct effects would a sharp rise in US interest rates have on New Zealand and global financial markets? First, US dollars circulating in global markets would flow back to the United States, the cost of borrowing in US dollars would rise sharply worldwide, and asset bubbles fuelled by abundant money would become more vulnerable to bursting. The recent falls in international gold prices and emerging-market share indices offer a glimpse of this. We remind investors that over the next two years of US monetary tightening, those investing in precious metals, commodities, emerging-market shares and foreign exchange will all need to exercise greater caution.

 

Turning to New Zealand, the Reserve Bank of New Zealand, like the Fed, believes monetary stimulus will need to be reduced further to anchor inflation expectations and continue contributing to maximum sustainable employment. Amid widespread speculation that it would raise the Official Cash Rate in August, the sudden outbreak of the Delta coronavirus variant and heightened uncertainty associated with an emergency nationwide lockdown ultimately led it to keep rates unchanged. The latest forecasts suggest the Reserve Bank of New Zealand's Official Cash Rate will start rising in the fourth quarter of this year, reaching 1.15% in the second quarter of 2022.

 

It seems several of New Zealand's major banks are even more eager to raise rates than the Reserve Bank of New Zealand. Just last week, while Auckland was still under alert level four restrictions, Kiwi Bank raised its mortgage rates across all terms from 1 to 5 years on 13 September:

 

Loan term	Special mortgage rate (Minimum 20% deposit required)	Mortgage rate (Deposit below 20%)
Fixed for 6 months	3.55%	4.30%
Fixed for 1 year	2.95%	3.80%
Fixed for 2 years	3.15%	4.00%
Fixed for 3 years	3.49%	4.34%
Fixed for 4 years	3.89%	4.74%
Fixed for 5 years	4.19%	5.04%
Variable rate	3.75%	3.75%

Latest Kiwi Bank mortgage rates, updated to 28 September 2021

 

Shortly afterwards, on 16 September, ANZ and ASB also raised their mortgage rates.

ANZ raised its standard and special mortgage rates for one-year, 18-month, two-year and three-year terms, with increases ranging from 4 to 15 basis points. The standard one-year rate rose to 3.20%, the 18-month rate to 3.45%, and the two-year and three-year rates to 3.59% and 4.00% respectively. For the special rates offered to customers with a deposit of at least twenty per cent and their main income paid into an ANZ account, the one-year rate rose by 5 basis points to 2.6%, the 18-month rate rose from 2.79% to 2.85%, and the two-year and three-year rates rose to 2.99% and 3.40% respectively.

 

Loan term	Special mortgage rate (Minimum 20% deposit required)	Mortgage rate (Deposit below 20%)
Fixed for 6 months	3.39%	3.99%
Fixed for 1 year	2.60%	3.20%
Fixed for 18 months	2.85%	3.45%
Fixed for 2 years	2.99%	3.59%
Fixed for 3 years	3.40%	4.00%
Fixed for 4 years	/	4.29%
Fixed for 5 years	/	4.59%

Latest ANZ mortgage rates, updated to 28 September 2021 

 

At ASB, the 6-month rate rose from 3.29% to 3.55%, the one-year rate to 2.85%, the 18-month rate to 3.09%, the two-year rate to 3.25%, and the 3-year rate to 3.55%.

Loan term	Mortgage rate (Deposit below 20%)
Fixed for 6 months	3.55%
Fixed for 1 year	2.85%
Fixed for 18 months	3.09%
Fixed for 2 years	3.25%
Fixed for 3 years	3.55%
Fixed for 4 years	3.99%
Fixed for 5 years	4.29%

Latest ASB mortgage rates, updated to 28 September 2021

 

We have also included Westpac's latest mortgage rates for comparison:

Loan term	Special mortgage rate (Minimum 20% deposit required)	Mortgage rate (Deposit below 20%)
Fixed for 6 months	3.29%	3.89%
Fixed for 1 year	2.85%	3.45%
Fixed for 18 months	3.09%	3.69%
Fixed for 2 years	3.25%	3.85%
Fixed for 3 years	3.25%	3.85%
Fixed for 4 years	3.99%	4.59%
Fixed for 5 years	4.29%	4.89%

Latest Westpac mortgage rates, updated to 28 September 2021

 

With this wave of rate rises across New Zealand's major banks, it feels as though there is little time left to lock in a low rate. However, these banks are not the only choices on the market. We recently learned from Industrial and Commercial Bank of China (New Zealand) Limited (ICBCNZ) that it is introducing new fixed annual interest rates from today: 2.45% p.a. for a 1-year fixed term and 2.85% p.a. for a 2-year fixed term. Its term deposit rates are also very competitive compared with those of other major banks, making them particularly suitable for customers looking to deposit funds for a short period. More favourable interest rates may be available for larger deposits! (Subject to ICBCNZ's final approval.)

 

Loan term	Standard mortgage rate
Fixed for 6 months	2.85%
Fixed for 1 year	2.45%
Fixed for 18 months	2.65%
Fixed for 2 years	2.85%
Fixed for 3 years	3.15%
Fixed for 4 years	3.65%
Fixed for 5 years	3.95%
Variable rate	3.69%

Latest ICBC New Zealand mortgage rates, updated to 28 September 2021

 

We also understand that while Auckland is at alert level three, ICBC's central Auckland branch will provide essential services every Wednesday and Friday from 10h to 12h. These essential services include: 

• Replacing debit cards or security tokens for internet or mobile banking;
• Helping customers change passwords or PINs for bank cards, accounts, internet banking, mobile banking and security tokens;
• Identity verification for personal customers settling property transactions during this period;
• Helping customers who encounter difficulties using electronic banking channels;
• Providing assistance to vulnerable customers.

 

YIJU New Zealand reminds readers that special conditions may apply when applying for the financial products or services above. If interested, please contact ICBC New Zealand:

Phone: 09 3747266

Email: operation@nz.icbc.com.cn

 

Disclaimer:

(1) The services above are subject to ICBC New Zealand's service and credit terms.

(2) The interest rates above may change at any time without prior notice.

(3) This information is for general reference only and should not be regarded as financial advice. If you need assistance, please contact your financial or legal adviser.

 

The views above are personal opinions provided for reference only. Neither YIJU New Zealand nor ICBC New Zealand accepts any liability.