ANZ, Westpac economists share latest predictions
Heading into 2024, home loan borrowers can feel optimistic that mortgage interest rates will move lower from here, economists say.
Kelly Eckhold (pictured above left), chief economist at Westpac, acknowledged that while 2023 was a “tough year” for borrowers, this year, the overall theme for mortgage rates is “stable to falling”.
“We think that mortgage rates have likely peaked and that rates (particularly fixed rates) will progressively move down over this year, as OCR cuts come closer into view,” Eckhold said.
As mortgage advisers continue to help existing mortgage holders prepare for higher repayments, Infometrics November estimates indicating 12% of fixed rate lending to roll off over quarter one, Eckhold said that borrowers now had greater certainty.
“2024 should be a better year for borrowers, as its much less likely that mortgage rates will rise, and indeed seem set to fall as we go through the year,” he said.
ANZ chief economist Sharon Zollner (pictured above right) confirmed that the bank had forecast a “steady sequence” of 0.25% cuts starting in August, with the official cash rate reducing to 3.5% over 12 months.
By the September quarter, ANZ expects inflation to be back within the RBNZ’s 1% to 3% target band, while the unemployment rate (currently 3.9%) is expected to have reached the 5% mark. Economic output, as measured by GDP, is expected to be “deeply negative”.
“Fixed rates should have peaked and if our OCR call is correct, [rates] should be gently on their way down,” Zollner said.
Revised GDP figures show weaker economy
While official GDP figures showed a 0.3% contraction over the September quarter, Eckhold said that revised GDP data indicated a recession had occurred at the start of 2023. Aggregate growth for the year was revised down, indicating that the economy contracted by around 1.6%, he said.
Acknowledging that the biggest revisions were in respect to data earlier in 2023, Eckhold said that the revisions suggested the economy had been going “sideways to backwards” for 12 to 18 months.
Westpac’s interest rate forecast was of the view that the RBNZ would rationalise that there was growing excess capacity in the economy, which in time, would bring inflation pressures down, he said.
But non-tradable inflation remains sticky
Annual inflation reached 5.6% over the September 2023 year, and Eckhold said that recent figures had shown that tradeable inflation (imported goods and services) had come off a little.
“The data suggests that some categories have declined quite markedly, e.g. in some food categories and domestic airfares,” he said.
Ahead of December quarter CPI figures, to be released on Wednesday, Westpac is forecasting a quarterly increase of 0.5%, and an annual movement of 4.7%. While economic momentum could be summed up as “pretty weak”, Eckhold said that it was still unclear how quickly underlying inflation pressures were easing.
“The view that we’ve taken is that it may take a while for those to come down substantively,” he said.
ANZ is forecasting annual inflation to have dropped to 4.7% over the December quarter, it’s quarterly forecast of 0.6% slightly lower than the Reserve Bank’s forecast of 0.8%.
While ANZ expects the December data to show a lower inflation starting point that the RBNZ expected, Zollner said that the “small downside surprise” would be almost entirely in the tradeable side.
Non-tradeable inflation, which describes services, non-shipped goods and wages, is considered to be a stickier aspect of inflation.
“Any news on tradables inflation is less important from an official cash rate perspective,” Zollner said.
Interest rate movements already evident
Eckhold said that markets had currently priced in a 0.25% official cash rate cut from May, and around 87 basis points of cuts for 2024, amounting to cuts of around 3.5%.
Shorter-term fixed rates, particularly two-year and three-year rates have started to ease. While variable rates are more closely tied with the 90-day rate and move along with the official cash rate, Eckhold confirmed that one-year, two-year and three-year fixed rates were influenced by expectations of rate cuts and could therefore move sooner.
“Even if the forecast of the OCR not falling until early next year comes about, I think you’d probably still expect to see lower mortgage rates through the back half of this year,” he said.
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