The Reserve Bank (RBNZ) has increased the Official Cash Rate to 1% from 0.75% - and is forecasting that the OCR will need to go a lot higher yet, to well over 3% - during the next three years.
The RBNZ indicated that it was "a finely balanced decision" whether the OCR should have been increased now by 50 basis points - but it has opted for 25 basis points.
RBNZ Governor Adrian Orr has also announced plans to reduce its holding of Government bonds, both through allowing the bonds to mature - and through "managed sales". It's planned to sell about $5 billion worth of bonds per fiscal year to Treasury's New Zealand Debt Management arm.
Wednesday's OCR decision from the RBNZ was the first of seven to be made by the central bank this year, with economists increasingly of the belief that the rates will be hiked by 25 basis points at each review - which would take the OCR up to 2.5% by the end of the year.
Such an expectation is in the face of growing inflationary pressures, with the annual rate of inflation having hit 5.9% as at the end of December 2021.
The RBNZ is now expecting inflation to hit a peak of 6.6% in the March quarter before gradually reducing. It doesn't, however, see inflation returning to its 1% to 3% target range until June 2023.
In commenting on the deliberation of the RBNZ's Monetary Policy Committee over Wednesday's decision and whether to move the OCR up by 25 or 50 basis points, the bank said "many members saw this as a finely balanced decision".
"...Weighing the options, the Committee came to a consensus to increase the OCR by 25 basis points. The Committee also affirmed that it was willing to move the OCR in larger increments if required over coming quarters."
Such a comment will fuel market expectation that the RBNZ may well in future at some stage throw in a 50 basis point rise, something that it had earlier fairly explicitly suggested it would not do.
The Kiwi dollar rose 40 basis points following the OCR announcement, reaching US67.7 cents.
One of the much-watched features of each release of an RBNZ Monetary Policy Statement is its projection of likely future OCR levels.
Economists had expected that the central bank would review its rates 'track' upwards this time from the previous forecasts made in November 2021 - that forecast an OCR high point of 2.6%.
In the event the latest forecasts have come in higher than economists were picking - with the RBNZ projecting an OCR of 3.4% by early 2025. This suggests it views inflation as staying 'stronger for longer'.
By implication that could mean mortgage rates being higher for longer as well.
The RBNZ is forecasting the OCR to hit 2.2% by the end of this year - which does suggest that it will likely raise rates in most, if not all, of its rate reviews during 2022.
BNZ's head of research Stephen Toplis said the RBNZ appears to be "setting the market up for a 50 basis point increase in its cash rate at the May 2022 MPS".
"It clearly wasn’t ready to pull the trigger now given the uncertainties that abound."
ASB chief economist Nick Tuffley said, the RBNZ’s forecasts were "hawkish".
"The Statement showed a need to lean much harder against inflation than in the November Statement, and with some added concern expressed about the risk of high inflation becoming embedded."
The RBNZ bought $54 billion of New Zealand Government Bonds between March 2020 and July 2021 as a part of its Large-Scale Asset Purchase (LSAP) programme, designed to put downward pressure on interest rates.
This is the statement from the Reserve Bank:
The Monetary Policy Committee today increased the Official Cash Rate (OCR) to 1 percent. The Committee also agreed to commence the gradual reduction of the Reserve Bank’s bond holdings under the Large Scale Asset Purchase (LSAP) programme - through both bond maturities and managed sales.
The Committee agreed it remains appropriate to continue reducing monetary stimulus so as to maintain price stability and support maximum sustainable employment.
The level of global economic activity is generating rising inflation pressures, exacerbated by ongoing supply disruptions. The pace of global economic growth has slowed however, due to the general elevated uncertainty created by the persistent impacts of COVID-19, and clear signals that monetary conditions will tighten over the course of 2022.
In New Zealand, underlying economic strength remains in the economy, supported by aggregate household and business balance sheet strength, fiscal policy support, and continued strong export returns. However, some short-term economic disruption is expected given the current growing COVID-19 health challenge. The high vaccination rates across New Zealand will assist significantly to reduce this disruption.
Economic capacity pressures have continued to tighten. Employment is now above its maximum sustainable level, with a broad range of economic indicators highlighting that the New Zealand economy continues to perform above its current potential.
Headline CPI inflation is well above the Reserve Bank’s target range, but will return towards the 2 percent midpoint over coming years. The near-term rise in inflation is accentuated by higher oil prices, rising transport costs, and the impact of supply shortfalls. These immediate relative price movements risk generating more generalised price rises, especially given the current domestic capacity constraints.
The Committee agreed that further removal of monetary policy stimulus is expected over time given the medium-term outlook for growth and employment, and the upside risks to inflation.
This is the record of the Monetary Policy Committee meeting:
The Monetary Policy Committee discussed developments affecting the outlook for monetary policy. Global economic activity experienced a robust recovery in 2021. The pace of growth is expected to slow, weighed down by resource and production constraints.
Global inflation is expected to peak during 2022 and then moderate, as supply disruptions are gradually resolved. However, global inflation is currently higher, and expected to ease more gradually than anticipated in the November Statement.
The Committee noted that central banks are now looking to increase interest rates sooner and by more than anticipated in the November Statement. The rise in global interest rates has resulted in a fall in the New Zealand dollar, as interest rate differentials have narrowed. Bond and equity prices have been more volatile of late, in part due to the shift in monetary policy expectations and a rise in geopolitical tensions. The Committee noted that asset valuations had been boosted by very low interest rates, and that higher interest rates may dampen these valuations in future.
The New Zealand economy has been resilient in the face of the COVID-19 pandemic to date. Export prices have remained high, supported by the solid international economic recovery. Domestic spending and investment have also been robust. However, conditions have been very difficult for some businesses, especially in service industries.
The recent emergence and spread of the Omicron COVID-19 variant is expected to further disrupt economic activity in the near term. People’s ability and willingness to work and spend will be strongly determined by near-term health outcomes.
The Committee reconfirmed that house prices in New Zealand are above their sustainable level, but are expected to ease over time. They noted that house prices had begun to ease, with monthly falls in December and January. Mortgage lending growth has also slowed. Government regulatory and tax policy changes, and high rates of residential building are expected to slow house prices. Higher mortgage interest rates will also play a role in the transition of house prices toward a more sustainable level over coming years.
Resource constraints are evident in the economy, and will be exacerbated by further disruptions from the Omicron outbreak. Employment is above its maximum sustainable level. The Committee noted that there has been some upward pressure on nominal wages, as expected, consistent with the tight labour market. They also noted that wage growth continues to lag CPI inflation.
The Committee discussed the outlook for net migration to New Zealand with the international borders being reopened in stages over coming months. The impact on labour supply is uncertain in the near term, but a positive inflow is expected over time as border flows return to normal. The Committee noted that net migration is assumed to increase slowly, helping to gradually ease skill shortages.
Annual CPI inflation has increased largely as expected in the November Statement, reflecting domestic capacity constraints and higher prices for imported goods, in particular oil. The Committee noted that annual inflation is expected to peak in early-2022, and then ease over the course of the year, returning to within their target range in mid-2023. The Committee agreed that further removal of monetary stimulus is necessary to achieve their Remit.
The OCR remains the Committee’s preferred tool for implementing monetary policy, and the impact of additional monetary policy tools is considered when determining the level of the OCR. With regards to the latter, members noted that the Funding for Lending Programme (FLP) window closes this year. They also noted that the cost of bank funding from the FLP is rising in line with the OCR.
The Large Scale Asset Purchase (LSAP) programme was introduced in March 2020, providing significant stimulus and supporting the functioning of the bond market. Purchases under the programme were halted in July 2021.
The Committee agreed that managing down the Bank’s holdings of these bonds was now consistent with their monetary policy objectives. Members also agreed that managed sales of bond holdings, in addition to not investing the proceeds of maturities, was most consistent with achieving their mandate over time (further details below).
The Committee discussed the extent of monetary tightening required to meet their price stability and maximum sustainable employment mandate. In doing so, the Committee applied their least regrets framework, noting that the most significant risk to be avoided at present was longer-term inflation expectations rising above the target and becoming embedded in future price setting.
It was agreed that more monetary tightening was needed than signalled in the November Statement. The Committee confirmed that the outlook for a higher OCR at the end of the projection horizon was a balanced reflection of the likely path of interest rates.
The pace at which monetary stimulus should be reduced was discussed by the Committee. Members agreed there were many factors to assess, balancing the need to reduce monetary stimulus with many uncertainties. They considered the balance of risks and noted that the behavioural responses of household and businesses in the face of higher interest rates would be important for the appropriate pace of tightening.
The Committee agreed that while higher interest rates are necessary, households and firms may have become more sensitive to interest rate changes as their debt levels have risen. Members also noted that a significant proportion of mortgages will be reset at higher interest rates over calendar 2022.
The current Omicron outbreak will lead to economic disruption and may weigh on consumer and investor confidence in the near term. Health outcomes will be important, in particular how these impact the supply capacity of the economy and level of demand.
While government spending and investment remains strong, the impulse to growth from fiscal support is now ebbing and will wane.
The recent signs of slowing in demand for housing was discussed by the Committee, which noted that house prices may fall further. The Committee agreed that higher interest rates were consistent with house prices becoming more sustainable. They also noted the Bank’s recent policy adjustments to support the stability of the financial system, including tightening of loan-to-value ratio restrictions last year and ongoing changes to improve the capital adequacy of banks. The Committee acknowledged that some recent, more highly-leveraged, borrowers may be financially stretched in a higher interest rate environment.
When deciding whether to move the OCR up by 25 or 50 basis points, many members saw this as a finely balanced decision.
When considering the case for a 50 basis point increase, the Committee noted the high starting point for inflation and the drift upwards in measures of inflation expectations. The Committee agreed that maintaining stable longer‑term inflation expectations near the mid-point of their target would greatly assist their purpose.
When considering the case for a 25 basis point increase, members noted that interest rates had already increased significantly late last year, and are expected to continue rising as the OCR is progressively increased. They also noted that conditional on the outlook, the OCR is expected to peak at a higher level than assumed at the November Statement. In addition, sales of the Bank’s LSAP bond holdings may put some upward pressure on longer-term interest rates. Members of the Committee were conscious of broader uncertainty in the midst of the current Omicron wave.
Weighing the options, the Committee came to a consensus to increase the OCR by 25 basis points. The Committee also affirmed that it was willing to move the OCR in larger increments if required over coming quarters.
On Wednesday 23 February, the Committee reached a consensus to:
- Increase the OCR to 1 percent.
- Not reinvest the proceeds of any upcoming LSAP bond maturities.
- In addition, direct the Reserve Bank to sell nominal New Zealand Government Bonds and Inflation-indexed New Zealand Government Bonds to New Zealand Debt Management at a rate of $5 billion per fiscal year, commencing in July 2022, provided it remained consistent with the Bank’s monetary policy objectives, and subject to market conditions.
- Hold the Local Government Funding Agency bonds until maturity.
177 Comments
We're the US of the South Pacific: political classes on both sides of the spectrum are only interested in protecting wealthy speculators and minority interests, grossly indifferent to the needs of the wider populace.
Accept this reality, pick up a bankable skill and move overseas: my advice to those in their early 20s!
O.25% can hardly not have been being anticipated by the market for quite some time now. That means the reaction will be as predictable as always if to use the trading banks as a guideline. Hence mortgage rates will increase immediately term deposit rates will follow & increase in a month or so.
... so , the Reverse Bank isn't saying " the party is finished " , and removing the punch bowl ... even though it's clearly obvious that the partygoers are drunk as skunks on debt , but Adrian's just slopping some out , just a little ... tipping the bowl slightly ...
Party on , team ... keep the music cranked up ... joy !
HM
I hope you note the comment: "(RBNZ) is forecasting that the OCR will need to go a lot higher yet, to well over 3% - during the next three years".
A bit of egg on your face for you labelling the ANZ bank economists as a bunch of "fools" a month ago for indicating that 3% was possible.
Also your claim of mortgage interest rates returning to the 2 to 3% range in the next couple of years is looking extremely unlikely.
Pragmatist
No - a very poor comment.
For those with a mortgage or a potential FHB, a key question is what a future interest rates going to look like . . . . knowing the rates after the fact isn't about making sound financial decisions.
While there is no certainty, both you and HouseMouse should not be dismissive of bank economists (who will even now be factoring their estimates into current carded mortgage rates) and the RBNZ (who determine OCR which has a significant impact on mortgage interest rates).
Anyone with even a little bit of nous and being prudent would be carefully looking at comments by both bank economists and RBNZ.
Certainly I would not be putting ay weight on HM who rubbished my comment regarding the then BNZ five-year rate at 2.99% looking attractive and then baseless calling mortgage interest rates to return to 2 to 3% within two years.
HM
No on both accounts.
What you don’t seem to understand is that there are a number of educated assumptions in an outlook . . . and as the situation changes or further data becomes available then those outlooks are adjusted.
There is no certainty; the possibility of future strains of COVID is one such example.
In terms of personal decision making one needs to critically consider the range of opinions - which are likely to differ - and come to their own reasoned conclusions. From my experience discussing a range of topics with a group of financially very successful people that is what they do. To simply be outright dismissive of opinions of the likes of bank economists as “fools” is naive . . . forecasting is not and has never intended to be an exact science.
When I posted in mid 2021 that the 5 year 2.99% rate looked attractive and prudent, that was not based on baseless guessing. Rather it was considering a range of comments by RBNZ and bank economists.
The fact that that advice was not only sound, it also disproves a commonly posted comment on this site that bank economists’ comments are in their own interest.
Oh, and I am fine when posters blanket rubbish reports or bank economists especially when they make unsubstantiated claims, I have no hesitation in reminding them how they have been so wrong.
Get a mortgage calculator and enter 750k for a mortgage at 6.5%, over 30 years.
Look at the result in weekly repayments, and add $100 pw for insurances, body corporate and rates.
And then let me know if you think the house building sector (and all it's related professions) will survive the implications of that, let alone all the other stressors they are facing.
(Note: that's for a new 2 bedroom townhouse in Auckland, for 850-900k. You can assume rental income for investors at circa $700pw )
Well, time will tell won't it? Very arrogant to dismiss a prediction less than two months into the year.
I still see almost no chance of the OCR getting to 3% in this hiking cycle, I would be open to a 5k wager.
You think our debt reliant housing market and economy can survive 3% (let alone 2.5%)?
I don't.
Either you will owe me a big apology or I will owe ANZ one, but we won't know for quite a few months.
Most inflationary pressures are coming from international factors far outside RBNZ control. making up interest rates faster ain’t going to make international oil price come down, or cure the global supply chain shortages which is pushing up price of scarce supplies locally.
No they have not overcooked. Not at all. It is actually the other way round.
Just look at the 1 to 3 year swap rates, for heaven's sake. The current OCR level does not have the primary influence on mortgage rates.
Actually, mortgage rates should be higher now, in order to fully reflect current swap rates. And with the following statement by the RBNZ swap rates have only one way to go - higher:
"It was agreed that more monetary tightening was needed than signalled in the November Statement. The Committee confirmed that the outlook for a higher OCR at the end of the projection horizon was a balanced reflection of the likely path of interest rates"
Not sure what's currency you were watching, but the NZD/USD gained about 1/4 cent as the market digested the MPS. I'd agree it's slightly more hawkish than expected. Strong indications of possible future 0.5% raises, a line call for this one, a rate track peaking significantly higher.
There is a risk no one is talking about, that is inflation keeps on rising much more than predicted beyond 8% towards 10% and for longer, while the economy slows markedly, unemployment rises and businesses fail. What will the RBNZ do then? That would be a really nasty scenario
I thought we had been talking about that?! Central banks are walking a tightrope of runaway inflation vs debt defaults/deflation
And each time they bail out the over indebted and the zombie companies, the width of the tightrope gets smaller - as opposed to allowing the free market to reallocate capital to productive endeavours ours that are self sustaining
This is really called woke politics. How will this have any meaningful impact on inflation and prices. Will the government ask RBNZ governer to resign if inflation doesn't come down?
Their only ever KPI is to keep inflation in control. They have failed in it.
Can we please have someone intelligent in the position. We want independent thinking person not a follower of current government in power.
Headline CPI inflation is well above the Reserve Bank’s target range, but will return towards the 2 percent midpoint over coming years.
My goodness, is he serious? Has he just decided to abandon the RBNZ’s primary mandate?
I suspect Orr will ignore inflation for too long and then be forced to panic if a wage/price spiral becomes embedded.
I predict Orr might go down as the worst central banker in NZ history.
I guess not man enough to take a decesion on his own but listening to the handlers. The finance ministry. His job depends on finance ministry. So i think it's the government to blame for this decesion today.
If the people in power want to do anything for the people who put them in position of power, then first thing to do is remove RBNZ governor but they won't do it since they are hand in glove with each other and that's what they wanted in the first place. To increase OCR by. 25. They do not care about the struggle poor are facing shops with everyday items.
Wise decision!
Kudos to Orr and team!
If they had been too aggressive, they would had to live to regret not seeing what happened in Ukraine yesterday between their meeting last week and the decision today.
We are pleasantly surprise that they saw through the booming economic facade for what it is.
Business as usual, let's go back to work.
Seeing what has happened in Ukraine yesterday you would think that a defensive policy with some higher rates and the ability to lower should it be needed would be a priority. We still run a current account deficit which is itself inflationary when the currency is weakened by interest rates that are too low.
NZ should be trying to deleverage if geopolitical turmoil, is on the up. We are the most geographically isolated country in the world, and debt is weakness.
This decision seems completely blind to anything of wider strategic importance, and myopically focused on the local property market.
Headline CPI inflation is well above the Reserve Bank’s target range, but will return towards the 2 percent midpoint over coming years.
Team transitory are back?
The world has changed with greenflation beginning and demographic decline in workforce across the OECD. In addition we are likely entering a new commodity supercycle.
That commodity supercycle together with the looming microelectronic shortages will likely push up prices for consumer durables.
I wonder what central banks will come up with next to offset higher non-tradeables inflation when TVs and cellphones become more expensive.
Did anyone expect any different. We may want more, and it may be right to do more, but this is a reserve bank governor that has hitched both horses to the property market, and is going to drag it along no matter what..
Change will only come when he goes.. let's hope it is before money is worth nothing.
I have been critical of the RBNZ polices for close on two years, and I regard the inflation situation we are now in as having been seriously exacerbated by RBNZ policies. However, this latest increase of 25 basis points, together with the accompanying language of willingness to move in larger increments and with the current decision on 25 versus 50 points stated as being finely balanced, together with the clear intention to sell Govt bonds, does send a clear message. They are now moving in the right direction at a reasonable pace, even if belatedly.
KeithW
Nope, our borrowing costs in overseas markets won't rise as a result of roll-off. Actually, any roll-off will raise NZ sovereign yields and as mad money from overseas seeks shelter in high-quality sovereigns, we should do fine. But the roll-off is happening at the margins, name of the game is OCR going forwards and that will be the reason for the cost of borrowing going up
When the RBNZ cut the OCR to 0.25% in March 2020 inflation was running at 2.50%, so real interest rates were -2.25%. Now inflation is running at 6% and we get a 0.25% hike to 1.00%, so real interest rates are -5.00%. This is a real interest rate cut of 2.75% disguised as a rate hike. The language of willingness to move in larger increments at some other time is hard to interpret as anything other than cynical when we compare the current situation to the 'Shock and Orr' rate cuts at the faintest whiff of a deflationary headwind.
Cool so real interest rates (interest rates minus inflation) are still massively negative, this is still extremely stimulatory monetary policy. What is the rationalisation for continuing to run stimulatory monetary policy with inflation running at 6% and expectations of 4%+ out to 2 years ahead i.e. well into the 'medium term' these jokers are tasked with managing inflation to?
Savings and investment decisions are made based on the individuals perception of real interest rates over a given time period. If inflation is rising faster than than the Reserve Bank is lifting the OCR, real interest rates are falling and monetary policy is still stimulatory.
Well said. If the rate of inflation is above interest rates, while employment is at record lows and the economy is growing, it’s pretty difficult to justify the additional stimulus.
Watching the speed at which the RBNZ was willing to throw caution to the wind and put in place emergency stimulus measures, it’s criminal how slow they have been to change tack when the data has shown a clearly overheating economy for months
Wow a 3.4% OCR would mean a 12 month fixed term rate of at least 5.5% - a 2 year at 5.9%, a 3 year at 6.5% and a 5 year at 7.5%
on a 500K loan taken out this time last year on a 12 month fixed term - repayments would move from $1931 to
12M at 5.5% = $2839
2y at 5.9% = $2966
3y at 6.5 = $3160
5y at 7.5 = $3 496
thats quite a jump for most families
Now imagine the people goaded into taking out a million dollar mortgage (or more) for a lousy Auckland home over the last year or two.
Miserable times ahead as the valuation plummets and the cost of the mortgage, petrol and groceries skyrockets.
Who could have seen it coming?
Well thats really ugly then
A $1M loan taken out this time last year on a 12 month fixed term - repayments would move from $3843 to
12M at 5.5% = $5678
2y at 5.9% = $5931
3y at 6.5 = $6321
5y at 7.5 = $6992
Anybody still predicting average house prices of $2 Million by 2025 ... anybody???
Having lived through a few covid lockdowns, I sense within the year we'll be getting our first taste of the economic equivalent. No going to the pub, no spending on new clothes, no overseas holidays, stuck at home cause 91's $5 a litre. Just as well we're all well-practiced for the coming drop in living standards. Another turn on the road to neo-feudalism, hooray!
For inflation to go down, monetary policy can't be stimulatory. Monetary policy will always be stimulatory when the rate of inflation is higher than the rate of interest in the economy. For monetary policy to actually pull against the inflation in our economy interest rates need to be above 6%, probably higher.
You have to baseline your assumptions with inflation.
Back in 2019 you might have paid circa 4% for a short term fixed rate loan (which tend to be most popular in New Zealand) and inflation was at 2% so you where paying a real rate of interest at 2%.
Today you would probably still pay circa 4% but inflation is at circa 6% so the real rate of interest is -2%.
In real terms RBNZ are currently offering large incentives to people to actually increase the amount of lending outstanding by running inflation so hot, larger even than during the Covid-19 pandemic in 2020-2021. Obviously though retail banks won't be able to keep lending at under the rate of inflation because shareholders demand real (inflation adjusted) returns.
The RBNZ now sees an OCR peak at 3.4% - very, very slowly they are coming to a grudging acceptance of reality, but they are still unwilling to fully acknowledge the situation (maybe because they are scared to cause the implosion of the housing Ponzi).
This estimate is still ridiculously low. Given how behind the curve they are, and how too slowly they are proceeding with the current tightening, the OCR peak will have to be well above 4%, and towards the 5% mark.
Be ready to see mortgage rates at a level not far away from the 7% mark.
I think they’ve decided it’s better for the economy to naturally create the next deflationary recession rather than attempt to intervene and be blamed for directly causing (as opposed to indirectly).
When people can’t put food on the table and spending drops they will be able to say ‘see the inflation (demand side) was transitory’
Talk about throwing fuel on the dumpster fire ...each rise ..adds to the ever increasing high inflation in Living costs in expensive country with low productivity, low wages which leads less disposable income = less spending in the sectors that have been hammered from the GOVT restrictions and mandates...
Yes in some areas building larger homes become smaller less products etc ...but rental market costs isn't exactly going to deflate on higher rates(esp with Govt new high cost rental rules that even some new homes don't pass!!!) ...Food getting cheaper ask a farmer Fert- feed-fuel prices? Higher rates in NZ isn't going to fund more exploration and production O&G international with the new GREEN movement-- ANTI mining O&G Russia Geo ...we have systematic issues to lowering energy costs chasing net zero targets ..higher energy costs affects all ... higher I.O hurt the poor first and foremost everytime
Yep.
And if, as I predict, the economy and housing market have truly slumped by mid winter, and inflation has pulled back a lot, then they will be able to pull out the old trump card around conditions having changed blah blah blah and hence a pausing of OCR hikes being justified...That's what I think will happen.
If I am wrong, as many here - most fervently P8 - think, then the house price collapse is going to be even greater (20% plus?) as a result of repeated hikes of the OCR north of 2.5%, which would actually be a good thing in terms of the bigger picture.
Completely get this perspective and absolutely could play out that way.
Just imagine if the US keeps raising rates the next few years and our currency starts getting demolished while the housing ponzi collapses and we still don’t have inflation under control. Costs keep rising to import goods and RBNZ is forced to keep raising rates to keep NZD up above 0.5-0.6 USD. Mortgage rates rising, inflation high, people defaulting on debt. Could get quite ugly.
Well at least he did raise I would not have been surprised at no movement at all . But he is now going so slowly the amount is ineffective anyway only when a major upset occurs will it force his hand and even then political forces will probably prevent him from doing anything as the election will be on the horizon. That he is ignoring the required band of around 2% speaks volumes, plenty of fuel for Bridges should he choose to use it .
Grant.robertson@parliament.co.nz
If you are unhappy with the performance of the RBNZ. Make your views known.
I really struggle with the lack of specifics, its all about what could happen in "Years time" and the whole thing about basically its business as usual, really ? Low interest rates had nothing to do with the RBNZ apparently it was a "Worldwide trend" so don't blame us for massive asset price increases.
Unsurprising. I think it's fair to say that the OCR is in the hands of the Fed more than the RBNZ. .25 was necessary to keep things steady, if there's a surprise .50 hike from the Fed in March we'll start going backwards rapidly. Looking at producer prices, inflation is not going away anytime soon.
RBNZ only seemed interested in getting inflation back into the 2-3% band in the medium term and had no interest it what it was doing right now. Kind of like letting a load of drunken hoons into your place and as they begin wrecking the joint say no problem they will have all left by lunchtime tomorrow.
You have to understand how 'social status dynamics' play out in the property market. We all know that the so-called middle classes view property as a means to higher social status. This is a fundamental tenet in sociology. An army of wives (and husbands), and sometimes wives and husbands, are always pushing to move into more prestigious neighbourhoods as a means to improve their and their children's social status.
The thing to note is that literally thousands, even tens of thousands, of these people will have made money out of the housing boom and will still be driven to increase their status through property. We all know these people and may be amongst them ourselves. They will still be looking to purchase 'up' and would probably be willing to take a cut in their existing lower-priced property to secure that 'better' one.
Inotherwords, better located properties will not be adversely affected by increased mortgages but lower-level properties will take a hit as lower wage-earners will find it more difficult to meet increased mortgage payments.
The other dynamic is that if the OCR increases throw too many over-stretched FHBs out of their homes (to be picked up by a new breed of investors buying ultra-cheap at mortgagee sales) then the Labour Government would have no option, politically, but to step in somehow (a National Government wouldn't care).
Of course it's political. But the politics are certainly assisted by the revised legislative mandate underpinning OCR decisions - which are now about unemployment as well as inflation.
The RBNZ's independence is as much a myth as is the notion of government agencies giving free and frank, and impartial, advice to Ministers.
With all this talk about floating mortgage interest rates rising and the OCR increasing to over 3% by 2024... leading to mortgage stress for recent home buyers, especially FHB's.
The margin Banks are actually making on floating mortgage rates above the OCR saw a massive increase from pre GFC days when the margin was around 2%.... it's now 4%.
Banks do appear to have lower fixed rate margins (than the floating margin) however these also appear to have had margin increases since the GFC.
Can anyone explain WHY the margin for Banks has risen so much since 2008? It's not like they have had to cover significant losses since then.
Does this indicate a lack of competition in the banking sector, unbridled expenses or just sheer profiteering? After all I think every Bank has downsized their number of branches since 2008.
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