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HOME owners have been spared another increase in interest rates - for now.
After raising rates five times since November, Reserve Bank Governor Dr Don Brash left the official cash rate unchanged at 6.50 per cent.
Since November, Dr Brash has raised rates at each of the six-weekly official cash rate reviews.
But experts say more rises are on the way.
Bank of New Zealand chief economist Tony Alexander said floating mortgage rates would probably rise by half a percentage point by the middle of next year, but for fixed-rate mortgages the peak may have passed.
ASB's BankDirect, for example, cut it's two year rate from 8.55 per cent to 8.25 per cent.
A month ago, money market dealers were betting that the wholesale interest rates, which determine floating mortgage rates, would rise a further half a percentage point by the end of September.
Now, after sharp falls in business and consumer confidence, they see only another quarter of a point by the end of the year.
Most economists, however, are forecasting another quarter of a percentage point rise from Dr Brash in August, and at least one more after that before he is done.
Real Estate Institute national president Max Oliver said he was disappointed that banks appeared to be talking up the mortgage rate. There was no justification at the moment for a rise in mortgage rates.
"There isn't a lot of confidence there. Business is going well for export but certainly not internally.
"Saying rates will rise again in August is really putting a dampener on the economy before it had a chance to recover."
Master Builder's Association vice-president Graham Coe said the decision was a positive indicator, but he also expected another increase by next month.
Deutsche Bank economist Darren Gibbs said: "The view among traders now is that unless we see a significant pick-up in confidence in the next five weeks, which seems unlikely, the bank might find it very difficult to move in August, in which case maybe the focus becomes the next official cash rate (OCR) review in October."
Economists have been slower to revise their expectations, though the trend is the same.
A Bridge News survey of 16 analysts found 10 expecting the Reserve Bank to raise rates most by 25 points on August 16.
Four analysts think there will be no further tightening.
But even though the consensus among market economists is that Dr Brash will give the screw another quarter turn, raising the OCR to 6.75 per cent, it is increasingly seen as a close call.
Mr Gibbs said: "Our central call at the moment is that they will go 25 points because the inflation outlook is not promising over the next year."
It came down to how concerned the Reserve Bank would be about the "second round" impacts (through higher wage settlements) 12 to 24 months ahead if inflation tops 3 per cent by the end of the year, as Deutsche Bank forecasts.
"I think the Reserve Bank still fundamentally thinks the economy is strong and that if we can just get through this period of pessimism, beyond that the future looks bright, so that monetary policy needs to be tighter at some point."
Although Deutsche Bank still thinks the OCR will peak at 7.5 per cent by the middle of next year, implying a peak