Brian Berry - Financial Advisor
	Straight forward, quality financial advice - so you can get on with the fun stuff in life. Click to view Rothbury's website.

As expected the Reserve Bank did not change the OCR (Official Cash Rate) on Thursday, indicating that they ‘continue to expect to begin removing policy stimulus around the middle of 2010' – so the message is unchanged.

Whilst that might not seem important, the fact that the message did remain unchanged was reasonably crucial for the short term outlook for home loan rates. The markets were already factoring a June or July start to the increasing cycle, so nothing has changed and we are likely to see interest rates stay at current levels for the next few weeks.

The economic recovery in NZ remains pretty patchy to say the least, but it does seem to be heading in the right direction although Dr Bollard did note that the expectation was that the economy will recover but that 'it's still an expectation rather than a reality” which means that there is no urgency about raising the OCR.

So, what should an interest rate strategy be? Well, because of the above, it appears that there is no immediate rush to move away from a nice low variable rate. The closer we get to ‘around the middle of 2010' the more that strategy will need to be reviewed by those who intend to fix the rate on all or part of their loans, rather than riding out the upward leg of the interest rate cycle on the variable rate.

Why? Because as soon as an increase in the OCR looks, in the market's eye, ‘definite', the shorter term fixed rates (out to say two years) will start increasing in anticipation. If the economic news becomes consistently positive then that will forewarn us of the timing of the likely increases.

If fixing is eventually viewed as an option then at current levels, I favour the two year rate as it provides a good mix of certainty and fair value, compared to the five year average for that rate term.