Mortgage holders can expect an immediate increase in floating mortgage rates, and brace for further rises following a rise in the official cash rate (OCR).

The Reserve Bank has lifted the OCR to 3 percent saying interest rates need to be at a level where they don't add to demand, to keep inflation contained. Economic expansion, household and business confidence and persistent housing demand are among the reasons given for the rise.

The governor had held off raising interest rates until March to avoid increasing the lure of the New Zealand dollar, which has been at elevated levels since central banks around the world slashed interest rates to near zero in response to the global financial crisis.

ASB chief economist Nick Tuffley explained it was about trying to get the balance right, and expects interest rates to go up around about two percentage points over the next two years. Inflation would begin to creep upwards unless interest rates were brought back to a more manageable level.

This would eventually bring floating mortgage rates to around 7.5 to 7.75 per cent.

Source: NZ Herald