BANG! The Reserve Bank (RBNZ) has raised the Official Cash Rate (OCR) by 75 basis points to 4.25% - and is now forecasting a peak OCR of 5.5% next year.
But there's more. The central bank is now forecasting the country will go into recession from the middle of next year and stay in a recession for a year. It sees four consecutive quarters of negative GDP growth from June 2023 onwards.
It also now sees house prices falling 20% from peak to trough.
The 75 point move announced on Wednesday is a record increase, the previous largest having been 50 points, which of course was what we saw previously in five consecutive OCR reviews this year. The RBNZ came out with guns blazing. There have been much bigger decreases - twice the OCR was reduced by 150 basis-points following 2008's Global Financial Crisis.
The RBNZ revealed in the record of its Monetary Policy Committee meeting on Wednesday that it had actually even considered a 100 point rise.
In fact the OCR is now at its highest level since 2008. The OCR was first introduced in 1999.
The RBNZ sees it going higher yet. In the all-important forecast of the expected future level of the OCR in the newly-released November Monetary Policy Statement (MPS), the RBNZ now sees the OCR peaking at 5.5% compared with just 4.1% by the middle of 2023 in the previous MPS document issued in August. And more strongly than that - the RBNZ is forecasting for the OCR to stay at 5.5% for a whole year between 2023 and 2024.
The OCR forecast is right at the moment arguably more important than the actual physical current level of the OCR, since the wholesale interest rate markets take their cue from the projections - and the retail rates, including mortgage rates are driven by the wholesale interest rates.
The RBNZ is attempting to get on top of inflation that hit an annual rate of 7.3% in the June quarter and reduced only very slightly to 7.2% as of September. The central bank's job is not being helped by a super-tight, red-hot labour market, with the unemployment rate just 3.3% as of September, while annual hourly private sector wages soared in the 12 months by 8.6% - beating all forecasts. Both the much stronger than expected September inflation figures and the hot September labour market figures were released subsequent to the RBNZ's previous OCR review on October 5.
In other key forecasts in the MPS the RBNZ - and this will surprise - is forecasting annual inflation to RISE again in the December quarter to 7.5% and stay at that level as of at the end of March 2023 before slowly dropping. But the RBNZ now does not see inflation getting back into its 1% to 3% target range again till the September quarter in 2024.
The RBNZ also now sees the unemployment rate actually FALLING AGAIN for the December quarter 2022 to 3.2% and for the same quarter it is forecasting annual private sector hourly wage growth of 9.1%. The unemployment rate is forecast to start rising next year and wage growth is likewise forecast to slowly start slowing.
In the media release from RBNZ Governor Adrian Orr on Wednesday he said the Monetary Policy Committee agreed that the OCR needs to reach a higher level, "and sooner than previously indicated, to ensure inflation returns to within its target range over the medium term".
"Core consumer price inflation is too high, employment is beyond its maximum sustainable level, and near-term inflation expectations have risen."
in NZ household spending remains resilient, "especially considering the rise in debt servicing costs, the fall in house prices, and low levels of consumer confidence".
"Employment levels are high, and income growth and household savings are supporting spending. The rebound in tourism is also supporting domestic demand.
"The productive capacity of the economy is being constrained by broad-based labour shortages, and wage pressures are evident. Aggregate demand continues to outstrip New Zealand’s capacity to supply goods and services, with a range of indicators continuing to signify broad-based inflation pressure."
He said the Monetary Policy Committee members agreed that monetary conditions needed to continue to tighten further, "so as to be confident there is sufficient restraint on spending to bring inflation back within its 1% to 3% per annum target range.
"The Committee remains resolute in achieving the Monetary Policy Remit."
Economists had overall expected (including all the economists at the country's five biggest banks) that the OCR would be hiked by 75 points this time.
Ahead of Wednesday's release there had been concern, expressed by economists, that making large moves in the OCR at what is perceived to be 'late' in the hiking cycle runs the risk of causing a 'hard landing' for the economy - in other words a recession. Well the RBNZ is now saying that's exactly what is on the cards.
ASB chief economist Nick Tuffley said the RBNZ "matched economists’ expectations with its 75bp hike".
"But the RBNZ’s stance was very hawkish, including discussing the potential for a 100bp hike."
Tuffley said the central bank's forecast OCR peak of 5.5% was "considerably ahead of market pricing ahead of the meeting".
"We do note that our inflation forecasts are lower than the RBNZ’s in the near term, so there is the risk that the RBNZ doesn’t quite get to 5.5%. But from the vantage point right now, the RBNZ is demonstrating a clear rush."
Before Wednesday's announcement the OCR was on 3.5% and had already been hiked some 325 basis points since the beginning of this 'cycle' in October 2021.
With the latest rise it means that this year alone the OCR has been increased 350 basis points, which is record movement in a calendar year. The previous highest increase in a calendar year was just 150 points, while the biggest reduction was 325 points in 2008.
This is the statement from the Reserve Bank:
The Committee agreed that the OCR needs to reach a higher level, and sooner than previously indicated, to ensure inflation returns to within its target range over the medium term. Core consumer price inflation is too high, employment is beyond its maximum sustainable level, and near-term inflation expectations have risen.
Global consumer price inflation is broad based and remains heightened. Food and energy prices, and persistent core inflation, have combined to create very high headline inflation in many countries. Central banks are tightening monetary conditions in an effort to slow spending and reduce inflation pressure. The ongoing slowdown in global growth will affect New Zealand through both financial and trade channels, and impact on people’s confidence due to uncertainty.
In New Zealand, household spending remains resilient, especially considering the rise in debt servicing costs, the fall in house prices, and low levels of consumer confidence. Employment levels are high, and income growth and household savings are supporting spending. The rebound in tourism is also supporting domestic demand.
The productive capacity of the economy is being constrained by broad-based labour shortages, and wage pressures are evident. Aggregate demand continues to outstrip New Zealand’s capacity to supply goods and services, with a range of indicators continuing to signify broad-based inflation pressure.
Committee members agreed that monetary conditions needed to continue to tighten further, so as to be confident there is sufficient restraint on spending to bring inflation back within its 1-3 percent per annum target range. The Committee remains resolute in achieving the Monetary Policy Remit.
Summary of Monetary Policy Committee meeting:
The Monetary Policy Committee discussed developments affecting the outlook for inflation and employment in New Zealand. Inflation is currently too high and employment is beyond its maximum sustainable level. The Committee agreed it must continue to act decisively to return inflation to target and to fulfil its Remit.
The Committee discussed recent international economic developments. In many countries, elevated food and energy prices are contributing to high headline inflation, with high core inflation reflecting more broad based inflationary pressures. Most central banks have continued to tighten monetary conditions and to signal further interest rate increases in coming months. Financial market volatility remains high as central banks act to stem the rise in inflation in an environment of slowing and uncertain economic growth.
Expectations for global economic growth have declined further. For example, China’s economy is facing headwinds emanating from the property sector, while measures to contain the spread of COVID-19 continue to cause production bottlenecks. The United States and Europe are, to varying degrees, experiencing the effects of high inflation, tighter financial conditions and associated economic uncertainty. The Committee agreed that the anticipated global growth slowdown will affect New Zealand through trade and financial channels, and increased economic uncertainty impacting on people’s confidence.
The Committee observed that consumer price inflation in New Zealand in the September quarter was significantly stronger than expected. Measures of core inflation continued to rise and price pressures broadened. Survey measures and other high frequency data suggest that pricing pressure will be sustained over coming months. In addition, shorter term inflation expectations have increased as high inflation persists.
The Committee agreed that to achieve its Remit objectives, actual and expected inflation need to decline substantially. Members highlighted that the longer actual inflation remains above the target band, the more likely it is that higher inflation expectations become embedded.
The Committee discussed the labour market at length, given its importance in the current economic environment. Labour shortages remain a significant constraint on economic activity. Recent data highlight a material increase in employment, enabled by a strong lift in labour force participation to a record level. Measures of labour force utilisation are near record levels and firms continue to report severe difficulties finding labour.
High consumer price index (CPI) inflation and competition for workers are putting upward pressure on wages. The Committee observed that overall wage growth is not exceeding CPI inflation after accounting for productivity growth. While wage growth for people in the same job is generally not keeping pace with inflation, many people are changing jobs or increasing their hours worked to achieve real income growth. The Committee noted that public sector wage growth has lagged that in the private sector and agreed this lag represents an upside risk to wage pressure going forward.
The Committee observed the stronger than expected rebound in tourism since New Zealand’s border reopened. Short-term visitor arrivals, international card spending data, and information gathered from recent business visits indicate that tourism spending will make a strong contribution to economic activity in coming months. However, some members noted that ongoing capacity constraints could, at some point, inhibit the tourism recovery and add to overall inflation pressures. In relation to New Zealand’s goods exports, members observed that a lower New Zealand dollar is currently mitigating the impact of recent declines in international commodity prices.
The Committee discussed the recent Financial Stability Report and noted that the financial system remains resilient. In particular, members highlighted that recent stress tests demonstrate banks’ resilience. The Committee was especially interested in the resilience of household balance sheets to scenarios of higher interest rates, reduced labour demand, and declining house prices. The Committee noted that while national house price indices have declined to mid-2021 levels, they are still above estimates of sustainable house prices and above levels that prevailed pre-COVID-19.
Household spending remains robust, especially considering the rise in debt servicing costs, the fall in house prices, and low levels of consumer confidence. Members observed that the large stock of household savings, in addition to income growth, may provide a buffer to support consumption now and in the future. However, members also noted that the ownership of savings is likely concentrated, leaving the majority of households exposed to high inflation and interest rates.
The Committee agreed that as debt servicing costs rise, spending decisions for many households will be increasingly constrained. These constraints would be most felt by recent home buyers with a high debt servicing commitment relative to their income. The Committee agreed that the impact of rising interest rates on households’ spending and saving decisions is an important channel for monetary policy. In addition to constraining spending, higher interest rates also encourage saving and paying down of debt.
The Committee discussed domestic financial conditions, noting that wholesale interest rates have risen significantly since the August Statement, primarily due to higher-than-expected inflation in New Zealand and globally. Retail lending rates have also increased but remain lower than the levels wholesale rates might imply. Members observed that this reflects a combination of both the higher volume and the mix of current bank funding. Members noted that a gradual normalisation in bank funding conditions over the forecast period could result in sustained upward pressure on retail lending rates.
The Committee considered the economic projections. Members noted that a reduction in aggregate demand is projected to cause GDP in the New Zealand economy to temporarily contract by around 1% from 2023. Members noted that this reduction in aggregate demand was necessary to return inflation to target over the forecast period. Members agreed that the exact timing and extent of negative GDP growth was difficult to predict, but historical evidence suggests risks are skewed toward a likely short period of contraction. Members also agreed that the sooner supply and demand were better matched in the economy, the lower the overall cost of reducing inflation.
Members agreed that monetary policy primarily impacts on demand in the economy. However, any increase in the supply potential of the economy, such as through productivity improvements, would also assist in reducing inflation. However, members agreed that a significant increase in the economy’s capacity to supply goods and services could not be relied on to reduce inflation pressures over the forecast horizon.
The Committee agreed that fiscal policy can also act to reduce demand in the economy. Members observed that in a higher inflation environment, a given level of government services would cost more to deliver. However, members noted that inflation would also lead to increased government revenues in nominal terms, potentially offsetting the rising cost of service delivery. On balance, members viewed the risks to inflation pressure from fiscal policies as skewed to the upside given the ongoing real demand for services.
The Committee received an update on the status of the Large Scale Asset Purchase (LSAP) portfolio and noted that sales of bonds in the LSAP portfolio to New Zealand Debt Management began in July. Members observed that the New Zealand government bond market continues to function normally under the current pace of LSAP sales and agreed to continue to evaluate this on an ongoing basis. The Committee agreed that the level of settlement cash balances is not a source of unexpected inflationary pressure and noted that overnight wholesale interest rates remain aligned to the OCR.
The Committee discussed the extent of additional monetary tightening required to achieve its Remit. Members agreed that the OCR needed to reach a level where the Committee could be confident it would reduce actual inflation to within the target range over the forecast horizon. Members agreed that this level had increased since the time of the August Statement due to the persistence of inflationary pressures resulting in a higher short-term nominal neutral interest rate.
The Committee discussed the size of the OCR increase to be delivered at this meeting. Increases of 50, 75 and 100 basis points were considered. The Committee discussed the relative merits of maintaining consistent increments in the OCR versus moving more quickly to reach the higher level of the OCR required. Members agreed that a larger increase in the OCR was appropriate, given the resilience of domestic spending, and the higher and more persistent actual and expected inflation outcomes.
The Committee gave consideration to an increase in the OCR of 75 or 100 basis points. On the balance of risks, the Committee agreed that a 75 basis point increase was appropriate at this meeting. Members highlighted that the cumulative tightening of monetary conditions delivered to date continues to pass through to the economy via the lagged transmission to effective retail interest rates.
On Wednesday 23 November, the Committee reached a consensus to increase the OCR from 3.5% to 4.25%.
301 Comments
The 0.75 hike was expected. The forward track predicting a terminal ocr of 5.5% and holding there for a year will be the big surprise.
Expect substantial fixed rate hikes.
All of the “inflation and interest rates have peaked” commentators (TA and BH) have more egg on their face.
So, in a nut shell (and pardon my friends ignorance), is the whole idea of raising rates - to counter inflation - to reduce spending, which in-tern will (supposedly) reduce demand, thus lower prices for said goods? Seems all rather silly to me, when all this ready does, is make people poorer anyway.
I think inflation has peaked but it hasn’t fed through yet. Shipping rates are plummeting and the dollar is stronger. Many products landing into NZ from Jan onwards will be cheaper than they are now. The world was already correcting prior to todays rise. I think they went up too late and they are now continuing for too long. No need to tip us in to recession. But a good bust creates a nice buying opportunity for the cashed up rich.
There's little reason to think that prices that have gone up will ever go back down. NZ is a land of clip the ticket and pass it on, now they know there's more fat to be had in local pricing, why drop them back? Actual competition is not something we do very well here.
RBNZ's decision today was pretty much built into consumers', businesses and banks' expectations. Certainly good to get the lid back on inflation.
The salient point of RBNZ's commentary is the underlying strength of the labour market.......
Labour shortages and higher wages will cushion the lives of borrowers.
Enjoy this sunny Wednesday - and the year ahead.
TTP 🍎
In theory, there is a ~2% bank margin on OCR. Reality is a bit more complicated... but yes. What is more alarming is the >100bps of surprise in the OCR curve over the next 12-18 months. Remember.. the last MPS projections were in September - and they've pushed it up their projections significantly in just 3 months.
If I was a betting man, I would say the next MPS would include more hawkish projections.
Utter BS. Did you bother to read the OCR projections in the Monetary Policy statement, and compared them with the previous one ? The OCR peak has been revised from 4.1% to 5.5%, and its duration has been extended into 2025.
Just look at what is happening to the swap rates, right now - I just checked and they gone up, very quickly so: for example, the 2-year swap is +30 and climbing...
"built into consumers', businesses and banks' expectations." ?? lol this could lead well into a Monty Python sketch.
Yeah maybe for the last few days. Stepping out on the timeline this is a slow-motion trainwreck that very few were positioned for, and an especially dark day for those stuck leveraged in property.
>7
Good to nail you down to some metrics Tim.
If RESILIENCE is measured in number of mortgagees sales can you put a figure on how many are acceptable before we can say the market has lost it's resilience?
You used to talk about a soft landing but as the house price percentage falls increased and sales declined you've moved away from that. I assume you've conceded the soft landing narrative?
Yep, the continued drops are not just technical, the intangibles around FONGO will kick in I think.
Having said that, investors such as myself (I am settling this week on a new 2 bed townhouse) are in it for the long term, servicing across the portfolio will be fine at these rent levels until 9% or so.
Folks who have bought since 2017 (including me) will see no capital growth so if their plans required that those plans are dust.
I didn't ban Future for being repetitive (although it was very annoying) but for being rude and abusive.
by Future | 20th Nov 22, 4:14pm
Oh your back Yvil. I guess you must be naked in that Padded White Room ? Or does that Straight Jacket come with Pants ?
Don't Bother Screaming at me either, it's sound Proof. Nice of that Nurse to comment for you though.
(yes I agree TTP's repetitiveness is also very annoying)
Like this guy, made $1m by cutting down a Pohutukawa tree blocking his views. $52k to make $1m.
https://www.stuff.co.nz/environment/300746109/owner-of-165m-auckland-ma…
Or maybe Greg Chasten thought that Future's comment didn't meet his own rules of comments which are at the top of every comments section, here it is as a reminder:
We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments
Right. If this goes the way of the roaring '80s, back in the last millenium, a 10% deposit, ie, the equity, on a million dollar property, bought after the market bottoms out, will double in value every couple of years through inflation. A lot of people , myself included, did rather well out of those circumstances, regardless of the high interest rates. Happy days.
Exactly. If you want to see financial distress, go watch the renters trying to buy food at Pak n Save.
The financial distress has been around for a long time. It is just that nobody gave a shxt about the "bottom feeders".
When mortgage holders are also lining up at the food banks.... THAT is when our dollar will really tank.
My apologies,i was certainly not defending investors and I for one have been against the ponzi scheme going on,seeing my kids futures being taken away by those seeking capital gains.My feelings are more for the owner occupier who bought because they needed a place to live and have got caught up in it all.
If rates stay up, then I'd imagine that any government, red or blue, will look for ways to help out owner occupiers. Some kind of government sponsored mortgage holidays, or payments, or something.
Which is another reason why I expect our dollar to devalue further.
Don’t forget that Chinese foreign buying was driving factor in the Auckland market a few years ago, and that seems to have abated. I think the Irish housing crash is a good analogy to NZ now. Peak to trough fall in residential property prices in Ireland from 2007 to 2013 was ~54%. I have a hard time imagining that interest rates could stay high for years on end though.
Imagine it's a pretty rude shock when they realize the principal payments are calculated against the remaining loan term.
- E.g. 30 year loan term, $500k mortgage @ 5% IO = $25k p.a..
- Come off a 5 year IO and the P&I over 25 year @ 5% = $35k p.a.
Worse if they started on a 25 year loan term, the payments become 20 years = $40k p.a. And that's using a 5% rate that doesn't exist anymore.
Investors that do not understand that most basic calculation are hardly investors. P&I mortgages were always a key part of a balanced portfolio, you need to clear off properties to have those income streams joined to other properties as you end your investment cycle.
I appreciate what you saying though, a lot of investors were all about capital growth and they will get burnt off for sure.
With the latest rise it means that this year alone the OCR has been increased 350 basis points, which is record movement in a calendar year. The previous highest increase in a calendar year had been just 150 points, while the biggest reduction had been 325 points in 2008.
So this is the biggest yearly movement in the OCR, in either direction, ever. We've hiked the cash rate further and faster now than what we dropped it in response to the GFC.
In a calendar year sure, but not the biggest change in a year.
Over the 12 months from 24 July 2008, OCR was decreased from 8.25 to 2.50, a decrease of 5.75
So far in this hiking cycle the raise over 12 months from 24 Nov 2021 to now it's gone up from 0.25 to 4.25, an increase of 4
See a graph of the OCR here: https://www.rbnz.govt.nz/monetary-policy/about-monetary-policy/the-offi…
Yep.
The housing market has pretty much crashed already, and they haven’t really done anything to prop it up. Have they?
I used to hold your view, and that’s a key reason that I expected (in 2021) that the OCR would not be hiked anywhere close to 4.25%. After all we have become so used to them and other central banks doing everything possible to halt a house price crash.
They clearly see a house price crash as a lesser evil than high and sustained inflation. And probably what sways them is that the number of people ‘wiped out’ by a 20-30% fall in house prices will be fairly contained. In that sense, the crazy boom of 2020-2021 allows them the scope to accept a crash.
They can and they may even want to. In a nation where owning a home automagically makes everyone a millionaire, a million dollars is no longer meaningful and holds very little real value - severely deflating the dollar as people cash out on their god given right to a million dollars.
Houses are not worth their valuation today, when you really think it through as every owner owning that much money and the impact that would have on inflation and the value of the dollar - there's far greater risk there than allowing the market to crash.
Some will get hurt, absolutely. And I'm not one that wills it on them either, but we should have never gotten into this mess in the first place.
I don't reckon the housign market has 'crashed already'. They're selling at or around CV still. Taking longer.
House prices might have dipped say 10% since the peak, but they went up by 30 or 40% after March 2020 government/RBNZ interventions.
A 30% drop is more like a crash. This simply can't happen because if it does, the whole NZ economy crashes too.
But unfortunately we added 70 billion of additional mortgage debt from Sep 19 to Sep 22.
That debt still needs to be serviced even if prices fall back to 2019 levels.
5 billion a year on that 70 billion in interest if rates go to 7%
23 billion a year in interest for the whole 337 billion mortgage book at 7%
Depends on when you locked in your debt.
- An increase from 0.25 to 0.75 is a 300% increase in cost of servicing.
- If you took out a mortgage at 8.25 OCR, and now it's 4.25, that's effectively a 52% decrease in your cost of servicing on the loan term.
- If you took out a mortgage at 8.25 OCR, then leveraged up to the max at 0.25 OCR, you will see a 300% increase in the cost of servicing.
Disclaimer: Yes I am aware OCR is not Mortgage Rates.
As expected, Orr always goes to the extreme, and always over-steering on every decision he makes. When COVID hit us, he went to 0% interest rates in a matter of months. Now he realized he made a mistake on inflation calls, and now is over-steering on the other end.
Waiting for the next time when he starts realizing he oversteered again, and reels back to the reverse and reduces rates to record levels *Palm hits head*
-7
He might be friends with Cole Arnott?
Owner of $16.5m Auckland mansion fined $52k for chopping protected pōhutukawa
https://www.stuff.co.nz/environment/300746109/owner-of-165m-auckland-ma…
You could easily argue he has understeered and not front-loaded sufficient rate hikes in this cycle. My gut feeling is that we'll continue to see inflation higher for longer thus OCR higher for longer. Once the FLP wraps up I am hoping the swaps and bank fixed rates settle down.. either way it's going to be a messy 2023 (especially the second half of the year).
~70% of mortgages are currently funded by deposits (of which term deposit rates, etc are still rather low).. this means bank margins are quite high.
If/when household balance sheets decrease and banks draw from other sources then we can expect rates to increase. I think there will be a marginal increase once the FLP disappears.
well I'm eating humble pie this afternoon after sticking with 50 bps. That track peaking at 5.50% I'm surprised the NZD is not at parity with the USD by now. Guess some markets understand that kind of an OCR implies we hit the wall much harder and faster than previously suggested.
Me too. Thought 0.75 indigestible politically, especially for the masters in government. Signals though, acknowledgement that inflation is imbedded and climbing still, well beyond those “transitory” sedatives offered earlier. Took the OCR down way too fast and low and increased it, way too late and slow and now they indeed have a very hungry tiger by the tail.
(a) Orr has his job locked in for 5 more years now so he can do what he likes
(b) Better to get the rate hikes out of the way as soon as possible, so they are not still doing it into the election period. They will be hoping that our memories are short and we'll have gotten used to them by then. Boiling frog syndrome.
(c) The worse the recession is by September, the more money Jacinda can promise to hand out in her election campaign to get votes.
Interest rates moving up in this cycle from say 3% to say 8% on a 30 year mortgage means that you can only borrow 60% as much while keeping payments the same. House prices should* fall a lot more yet.
(*we now know what should happen and what does happen often gets interfered with by government intervention).
Meh. XRP is a bit of a dinocoin - it might do well if the Courts are kind to them but its been a poor performer.
I don't get QNT. I read up on everything but it just seems like another mumbo-jumbo "blockchain enterprise" 2017 ICO coin
I also like things with real yield like GMX (16% dividend at the moment)
He needs to just be honest he wants to create a recession: Orr needs people losing their jobs and their houses and their businesses, because he totally stuffed up monetary stimulunacy and way overcooked QE.
Trouble is peoples lives are now ruined as he continues his mistakes and overcooks QT.
The irony of the level of QE and govt self-congratulating themselves as being the saviours of the nation, keeping people in jobs, NZ doing so well etc, only to turn around and effectively indicate that we have far to many employed and too much spending. We have built spending habits and a view of the housing and employment market based on historical house prices and current hot labour market due to immigration changes, and now being told to do the opposite of these habits formed by political decisions. Behaviour is slow to change, and the instrument of the OCR is blunt and dampened. Some lives will be ruined, and all I can hope is with the fallout of this, we come back together as a country and help each other however we can.
On a more positive note, I'd like to say a big thank you to everyone here for helping myself and the other readers have intellectual discussion and a few laughs along the way with these major issues.
The all caps in the headline and the so-big-it-is-cropped thumbnail image really add to the effect.
Come here for the insightful content, stay for the witty use of text formatting and images.
Also pray for ya boy here with his mortgage coming up for renewal in early Feb!
A move in the right direction, but still way too slow and too timid. Orr should have also planned for a supplementary OCR review meeting in mid January. Waiting until February for the next 75 bps increase is way too slow.
Well, at least Orr is starting to acknowledge reality, and if you read the actual Monetary Policy Statement, you can see that the OCR peak has been revised upwards to 5.5%.
This is good and closer to reality, but I am now convinced that, given the timidity and tardiness of the RBNZ in tightening monetary conditions, the OCR peak will be at least 6%, and very likely higher than that. Orr knows it too, and very well, but he did not have the honesty to publish it today, or he simply did not want to spook the markets or admit that he was so wrong.
Interesting is also that the OCR peak is now projected to last for longer (for many quarters), with an expected OCR level of 5.1% even in 2025. I think that the OCR peak will last at least for the whole 2025 and for good part of 2026, as history teaches that inflation is very difficult to tame, once established and entrenched, and it is going to be a slow process.
The rates normalization process has finally kicked in motion. Good.
Timidity maybe, lack of accountability, 187%, however there must be a long term strategy at play here or they simply don't want to shock the economy so much so that the consequences could be what they see as more dire than a gradual increase as is the current strategy. Perhaps they feel the kiwi ego is too fragile and toomuch damage would be done without allowing ample time for the average kiwi to bring about the behavioural spending changes necessary to make meaningful change? I just can't shake the feeling that they underestimate the resiliance of the people. Open to hear others thoughts around this
If you read carefully about the CPI, you would read housing inflation is the biggest contribution of the CPI. and in that housing calculation, it is building cost + mortgage payments + rents.
with a hiking interest rate, it will push the mortgage payments even higher, building costs too. hence, I wonder how much inflation was actually caused by OCR increase?
Though their TD rates have surely been kept lower due to FLP diminishing competition in the market. Why borrow from customers when you can borrow for cheap from the RB... now that's ending (good riddance), TDs may jump up. Potentially market rates too to keep a balance, but I'm generally unsure as it's such a weird program to begin with. I dun wirk in da bank.
Almost zero. The endearment of Combover Tony from people like Ann Gibson at One Roof is deep. They will be talking of ways of continuing to spruik without looking quite as ridiculous as they have this year. Tall ask.
Friggin’ disgraceful from that tabloid. You know I laid complaints with them, and despite 2 or 3 emails to them never got a response?
Couldn’t be assed taking it to the Press Council, all of their snouts are in the trough….
Orr has the mannerisms of an aircraft pilot looking at the gauges and seeing nothing is reading as he expects it to for the inputs he's putting in and now he's just wildly yanking on the stick, all the while the wings are buffeting and the plane's about to drop completely out of the sky.
Quite aside from the housing market, the debt servicing costs for businesses are getting spendy really quick. Several of our clients are about to push the eject button pretty soon as they need to cut costs to stay in business.
It will only effects those leveraged up to silly levels, or relying on others to be so. Some saw this as inevitable a while ago and have been preparing for it, while being mocked by the vested interests on this site. I expect the normalisation around the cost of debt to get a lot worse before it gets better.
An FHB with an 80% mortgage on a lower quartile Auckland property bought last year owes around $800k. At 7% interest they will now be paying $2,456 a fortnight, up from $1,459 when interest rates were 2.5%. That is quite a bit of extra cash to come up with, and it could still go higher than that.
It's a joke that is just not funny anymore.
On one hand they are trying to stem lending and spending by increasing rates at record levels.
Yet on the other hand they are still dolling out lending and specially reduced rates.
First action before any increases should have been to immediately halt the FLP. The fact it is still going is deliberate negligence.
That's a fair point - although it's discounted, it's offered at a floating rate variable to the OCR. RBNZ offfered cheap loans at the expense of risk on the banks side if the rate trended upwards. Loans taken out at 0.25% would now be paying 4.25%. This is why we have swaps, to share the risk on both sides and allow banks to lend fixed market rates against the RB OCR.
Removal of this will shift market rates and TDs up (great for savers), however some of the risk will adjust back to RBNZ by way of swaps and this will prove somewhat risky if they can't get inflation under control and need to keep raising the OCR. Fortunately for them, brokers sold people on the idea of a 1 year term while interest rates were at rock bottom and people went for it. I don't know what to say about that. People are probably refixing for one year again with hope it will all come back down before too long.
What RBNZ is talking has already been commented on this website since early 2021 - so what Mr Orr and his team is saying is not surprising but their acceptance of goof up is, may be are been forced to accept by economy cycle - fundamental and no longer able to manipulate.
I didn't realise the RBA had a full employment mandate as well;
The Reserve Bank of Australia has warned it could return to super-sized interest rate hikes if a surge in wages pushes inflation to new 32-year highs.Governor Philip Lowe hinted borrowers could cop 0.5 percentage point rate increases again, like they did in June, July, August and September, and raised concerns about a possible 'price-wage spiral'.'Given our mandate for price stability and full employment, the board expects to increase interest rates further over the period ahead,' he told a Melbourne dinner on Tuesday night.
https://www.dailymail.co.uk/news/article-11459023/Reserve-Bank-warns-re…
No chance of our wages going down with the new collective bargin per sector now in place, only one way they will go and that's up. So guess they are wanting mass unemployment instead to counter that, what a lovely situation for the working class. I'm guessing the building industry and related fields will be first,
People have been warned all year to fix for 3 to 5 years. Only one person I know is not going to be hit with this for at least 2 years and the rest are going to be raking it in on TD's. We are looking at 1 year TD rates of 6's from Feb next year and Mortgage rates in the 8's. The Boomers will be cracking on with the rest of their lives that's for sure.
Exactly.
Step 1, figure out what rich retired people actually want.
Step 2, figure out how to give rich retired people what they actually want.
Step 3, become a rich retired person that doesn't know what they want.
To be fair most of them only want to do that one long holiday their renters have been working for their whole lives.
Hey Future man! Can you put the popcorn down for five minutes, wipe that smug grin off your face, get up off the sofa and go to the scroll cupboard please. Its time for the second un ravelling. Some folk here have got your back. You must resurrect from the ashes.. :)
I am still in a state of shock, I only expected 50 and a MUCH lower forward track. I only owe 10% on a rural property thats easily covered by the low rent of an onsite cottage, but I still fear whats to come.
So many people now worried about possibility of losing their home next year. Who will push for pay rises when they may end up in the 5% who now surely will be laid off.
Amazing that Combover and Ashley are now just saying everything we said where only educated guesses, and that TTP is so morally bankrupt as to still spout his belief nothing bad is going to happen.... at 5.5% OCR, trust me, lots of bad things are going to happen to honest hard working families.
Regulation has meant in most markets people who sell things have to understand the mechanics of the market they operate in, clearly Real estate agents have a long way to go.
The only positive is that, there is no credible way, JA can blame this mess on National from 5 years ago.
I've been preparing since 2018 for a catastrophe yet I too am feeling a little anxious about what lies ahead. The wagon train has its wagons circled and the powder is dry and the bayonets are fixed. The worry will be friends and relatives that haven't prepared. I'm usually a little pessimistic. The only good thing will be I'll be able to tell my wife, "I told you so".
I honestly feel bad for NZ'ers. It's not even about housing prices anymore. Everyone has their side they want to stick to and that's fine.
But if you zoom out and see how this "elected guy" is steering the NZ economy, and the government that re-elected this guy because of a "good job" he's done....... I really and truly feel bad for all NZ'ers impacted by this.
It's beyond politics now. They are playing with everyone's life by making stupid decision after stupid decision. My friends, my family, my neighbours, small business owners, people who work hard at jobs for a salary that is worth less than before....
And oh btw, he's getting paid hundreds of thousands of dollars to do shit at his job; coming from the hard earned tax payers money.
-7
Not sure what you are trying to imply, not really at any stage. If you've lived in NZ long enough and you see it come to this, being led by "smart" people, you just have to wonder and have empathy for those around you. Issue after issue not being resolved. Lots of talk, no action. But when there is action, it's always the wrong action. It's quite sad actually, and if I were you, I would feel bad for thy neighbour as well instead of talking about psychological stages.
It's a shame that we are all in this game that isn't controlled by us, thus so many comments with different perspectives on this comment board. At the end, people care, that's why they post. Unfortunately posting doesn't do much to change the situation and predicament NZ'ers are in.
I left a while ago, but it just pains me to see this happen. NZ is such a beautiful country and vibrant people. But unfortunately it's led by incompetent people (no matter which party you side with).
Oh well, on to the next.
-7
NZers are in this position because they chose to be. They voted out (or threatened to vote out) any government that tried to bring in policies to bring down house prices. JA had to take it completely off the table during her tenure in order to get the rabid property spruikers off her back.
Greed and self-entitlement got us here. Let's stop blaming everyone else and be grateful that at last property prices are falling. Hopefully enough people get stung that housing will no longer be seen as a get quick rich scheme and start to seen as a human right.
You keep going back on the topic of housing prices, when it's actually much more than that. As per my original post, it's way past everyone's belief or thoughts on where and how the housing market should be priced. It's about how this country continues to be governed by the incompetent and the incompetent keeps getting elected because there are no other choices to choose from. This is not a housing problem. This is a governance problem where we keep making the wrong decisions and keep doing 'band-aid' solutions for our systemic problems. NZ has lost it's place in the world.
I don't really care about a housing crash or a housing boom. If that's all you are focused on then, no wonder NZ is in a much bigger mess than before. People need to stop pointing fingers at each other, and start pointing fingers at those elected and hold them accountable for all the decisions they messed up (and continue to mess up) on.
-7
Housing prices have had a direct and indirect impact on all of these issues. Other than our atrocious emissions per capita, traeting housing as investment asset rather than a humans right to shelter is the single biggest issue that has held back progress in New Zealand over the last decade (maybe longer).
yes because that is the biggest chunk out of anyones paycheque every month ... be that for a mortgage or rent... thats why people go back to it.
Person A is not excited about broccoli going to $19 a piece because they cannot sell it on after they bought 6 of them, nor is person B worried because they can go without broccoli until its makes sense to eat broccoli ...
incompetence perhaps, but I would say wilful importing of thousands of people without a plan to home them and making them fight over the roofs over their heads by sitting opposite an ANZ mortgage advisor, which kept getting more exciting by the week as OCR dropped and they could lend more money... " i lent 90 million in the last 6 months, the last 6 months i lent 180 million, i'm doing twice as good in my job"
you can suggest the gov (blue or red) should have bucked the trend and not followed the stars and stripes but that was never going to happen - ok become the least competitive market in the world ... that will do wonders for the vote....
We lived in a globalised world where local market didnt matter..... somehow i think everywhere will look at this time as mad hysteria and hopefully go back to local issues.
I have read a few times lately that economists are saying employment is too high. I understand that's a bummer for employers as it increases competition for labour and increases wages. Increased wages would be a driver for upwards inflation I guess.
One oft proposed solution is to increase immigration ( immigration increases the labour pool, cools wage market ).
My question is, how do you do this without :
A) increasing housing shortage
B) Displacing previously employed people ( at least, prospective participants in the work force ), with some of these going onto some form of income support
C) Undercutting the ability for current employed people to negotiate a wage increase in response to the largest inflation figures in quite a while.
If the largest cost most ( many ) people experience is due to housing cost, how does limiting their ability to improve their earning power whilst increasing the competition for housing help them?
P.S the high OCR is a factor here I guess, as it "should" reduce house prices and possibly also increase labour pool ( as low performing/ paying business exit due to higher servicing costs? )
There is the possibility that the high OCR could actually increase inflation, that the high cost of borrowing will be passed on by companies and individuals will expect big pay rises to pay their mortgage interest. This would probably be the case if unemployment doesn't go up sometime soon, everyone will be able to pass on their costs and interest will be a big one.
I also have a theory that this low unemployment could be structural, that we are so efficient these days that there are barely any jobs that are not to some extent necessary. The building sector should see a big hit soon, but even then I would think there is a lot of pent up demand for renos, I know many people waiting for demand and prices to go down before doing a new kitchen etc. It could all change real quick, once the economy tanks people who thought their job was safe can get a shock, but it may not, the low unemployment rate could be very hard to shift.
Have agreed with you on this - although having real interest rates at -5% isn't fighting inflation - we've been running inflationary monetary policy settings while pretending to fight inflation. "Look were raising the OCR so that real interest rates are only -4% now!"
Read the Dublin headlines, things going so well Goldman Sachs funding building for apartments so workers can live there, once covid hit everyone scattered to WFH, now companies want back in office in Dublin but not enough houses. Lesson from Ireland property crash, BUY the bottom!!!!! investment is very cyclical, boon and bust the central bankers make it so, they are guranteed to cut rates in NZ as things turn to shite, and hold them low for too long........
"Luxon this afternoon told reporters National would review its tax policy as a result: It would still index tax brackets but other promises including cutting the top tax rate would be reassessed.
A major focus of National’s tax policy is the indexing of tax thresholds to inflation."
Sounds sensible. Funny how they used the OCR as an excuse to weasel out of the other less popular tax changes though!
National needs to have a coup within its own party.
Goodfellow and the old guard need to go...now! Luxon and Willis too
I don't think they understand that the world has changed.
Whats their plan so far.....improve tax settings for landlords and bootcamps.
Anything else?
Blame Labour and teachers for truancy but ignore the fact that we just went through several terms when teachers and students were off sick with Covid. To be classed as regularly attending you can't miss more than 4 days in a term. It's also interesting that this is one of the few occasions when they are not breaking down the "truancy" by decile. Probably because all the higher decile kids going on overseas trips and skiing holidays would be classed as "truants".
Ummm 🤔? Rental property or .. term deposit...
No brainer ... TD .
Housing market will crash by election.
Huge Supply no demand and Stalinda and Robertson's Mission is complete..
Housing market screwed
Economy screwed
Education screwed
Health screwed
Prisons empty
Crime out of control
Police demoralized
Roads ruined
Road toll no where near Zero
Mental health overwhelmed
Farmers ruined
Acres of unwanted pine trees
5 waters corrupts market
Maori control out of control
NZ surpassed by Zimbabwe and Sri Lanka!
Holy smokes that’s a pretty bleak outlook. Hoping I can survive through until mid 2025 when my 5.29% x 3 years is up, and that rates are not close to 7% around then. Pay increases factored in, very bleak indeed. All discretionary spending has already been cut. It’s pay check to pay check now
Similar boat, mid 2024 with a year of pain coming up once we refix. And that's if we don't move and have to borrow more, which was on the cards at some point as our house is too small for our family. You know, the one we already put off until we were more financially secure.
NZ really is a place that just loves kicking people for trying to do the right thing, isn't it?
Moving away from family, support networks and childcare resources to move somewhere with fewer jobs and less opportunities career-wise is not an option for many, and normalising it as a solution instead of a symptom is the kind of thinking that got us into this mess.
Excellent from Thomas Coughlan at the Herald - yes there are still a few good journos there, this guy is I think the best political journo in the land:
https://www.nzherald.co.nz/nz/politics/thomas-coughlan-labours-chances-…
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