Falling interest rates are likely to be offset by wider bank margins and if inflation starts rising through increased domestic or government spending, long-term rates could rise.
ANZ-National Bank chief economist Cameron Bagrie said yesterday that the big question for this year was how much lower could interest rates go.
Other issues to ponder this year included where was the Reserve Bank's official cash rate headed and what did that mean for bank swap rates, what did increased government borrowing mean for long-term rates, and what effect would "quantitative easing" and a zero Federal Reserve funds rate have?"We believe the international interest rate environment will be dominated by two factors: low and stable policy rates and expanding government balance sheets.
All other things equal, these would normally put downward pressure on interest rates - at least initially."
However, leaving it there ignored the long-term consequences that would surely follow - inflation and recovery which were "bad" for interest rates, he said.
The ANZ-National Bank saw scope for long-term interest rates to rise this year, most likely once the bad news was out of the way.
That could come as soon as late March or early April.
In New Zealand, the scenario was slightly different and was likely to be dominated by altered lending appetites for both demand and supply sides as well as people reducing debt and a more accommodative monetary supply.
While the United States could "internalise" its problems by supporting assets and monetising its deficit, New Zealand could not, Mr Bagrie said.
"Instead, we need to access foreign markets and once the dust settles that's likely to see term rates drift up, steepening the yield curve.
"While policy rates will continue to fall in early 2009, this will be offset by wider margins and risk premiums," he said.
Westpac chief economist Brendan O'Donovan said current wholesale interest rates implied a very deep and front-loaded easing cycle by the Reserve Bank.
Much of that had already been reflected in lower mortgage rates.
The advantage to floating or fixing for a short-term was diminishing and borrowers should be looking for opportunities to extend the duration of their debt.
Real Estate Institute sales figures for December were due out within a few days.
Mr O'Donovan said the series was "particularly volatile" last year and he did not put too much emphasis on the result.
Westpac's view was that house sales hit rock bottom early last year and had stayed there ever since.
That trend was expected to continue through the first half of this year.
In contrast, house prices increased slightly late last year, although that was normal for the time of the year.
"On balance, we think there is now enough evidence to say that the pace of decline in house prices has let up.We put this down to much lower interest rates."
Some of the negative factors likely to affect the housing market this year included the shaky labour market and lower income tax rates.
House prices were expected to continue falling this year but much less viciously than they fell last year, he said.
