Interest rate’s sneaky moves

There was a time when the floating interest rate was considerably higher than the fixed rates. Only five years ago the two year rate was around 8% and the floating around 10%. After many years of low interest rates, one feels, that a wait and watch approach is the best to take when it comes to considering fixing rates. And with the Reserve Bank of New Zealand issuing only a verbal warning of what may be higher interest rates in the future, many feel like they can roll over and hit the snooze button once again.

However we have noticed a particular trend developing over the past year. The floating interest rate has been unchanged but the fixed rates have started their climb upwards. The Reserve Bank has a lot of influence over our rates but since we tend to rely on raising capital from abroad quite heavily, there is a component of dependence on the global markets as well.  Over the past ten years we NZer’s have paid a lot on our interest rates compared to other countries as there is particular perception of riskiness due to some of the fundamentals of our economy.