90 seconds at 9am: High bank funding costs; Marac guarantee extended

Watch on our video page here Watch on YouTube here Bernard Hickey details the key news overnight in 90 seconds at 9am in association with the BNZ, including  news the RBNZ held the OCR at 2.5% yesterday and signalled it would not hike it until the middle of 2010, as expected. But it increased its inflation forecast and said it may not have to increase the cash rate as much as it has in the past because of higher bank funding costs. The RBNZ said it expected these higher costs to remain high for the foreseeable future because of heavy government borrowing globally. This means variable rates are likely to remain cheaper than fixed rates for longer. Westpac and ANZ have cut their longer term mortgage rates, but they are still more expensive than short term rates. See all mortgage rates here. BNZ economist Tony Alexander told the DominionPost he expected the OCR to rise 3% by early 2012, which would push variable rates up to 8.6%. He says variable looks a cheaper deal than fixed for now, but to think about fixing some time soonish.

Borrowers should stick to floating mortgage rates, despite the expectation that they would gradually rise. But in coming months, borrowers should think about moving into a one or two-year fixed term rate, because the average rate should be lower than floating rates over that period.