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Nick Tuffley's interest rate update

ASB Bank chief economist Nick Tuffley talks to TMM publisher Philip Macalister about where interest rates are headed and what strategy borrowers should take in this low interest rate environment.

ASB Bank is predicting that the Reserve Bank will make two more cuts to the Official Cash Rate this year, bringing it down from 2.25% to 1.75%.low and stable for some time.

Tuffley says we are likely to see a reasonable majority of those cash rate comes through to floating rates, however the scope for more cuts to shorter-term fixed home loan rates is a little bit more limited.

The outlook for interest rates is rather benign and there is likely to be "quite a lot of stability for a long time."

This environment is only likely to change with one good shock and one bad shock. A good shock would be that the New Zealand economy picks up and inflation starts to rise, which would require a tightening response from the Reserve Bank.

A "bad shock" would be some sort of stress in the global economy which would see risk premiums, and the cost if funding rise.

ASB's analysis of interest rates is that that generally it tends to be cheaper overall to use the shorter term rates than long-dated ones.

Tuffley says the housing market is picking up and there is now a "greater risk" the RBNZ beefs up its macro-prudential regulation tools.

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