Advisers concerned ahead of central bank's big decision
A move by the Reserve Bank of New Zealand to raise the official cash rate by 0.75% would be a step too far, according to some mortgage advisers.
Reuters surveyed 23 economists ahead of the RBNZ’s Wednesday’s cash rate announcement, with more than 60% expecting a 75 basis-point hike, taking the OCR to 4.25%. Only eight economists forecasted a sixth 50bp hike to 4% on November 23.
New Zealand’s biggest banks – ANZ, ASB, Kiwibank, BNZ, and Westpac – were all tipping an increase of 0.75%.
The RBNZ has consistently lifted the cash rate by 0.50% in its five meetings in 2022, dating back to February.
John Bolton (pictured above left), founder of Squirrel Mortgages, said in his view a 75bps increase was too much.
“The RBNZ needs to be mindful of how quickly they went up as we navigate the impact of existing changes still washing through,” Bolton said. “We are now starting to see people running into problems and I predict a massive cash flow crunch is coming.”
Read more: Hike it like it's hot: RBNZ expected to lift rates by historic 75 bps
Bolton said he was seeing early signs of recession everywhere.
“If the RBNZ goes aggressive on Wednesday, they are just increasingly the likelihood of a hard landing. I think enough is done already as inflation will begin to ease. The biggest problem at the moment is the government and mismanagement – the management of the border has been a joke.”
Craig Pope (pictured above centre), the director of Craig Pope Financia, said he believed that the RBNZ was “smart” and would only increase the cash rate by 50bps at its meeting on November 23.
“The Reserve Bank seems to be struggling to keep inflation under control, and a big hike like this, especially close to the holiday period, is not unexpected. The key thing for borrowers is don’t panic,” Pope said.
“Check your spending, adjust your budget and expenses where possible. If already paying more than the minimum payment on your home loan, drop payments to the minimum (if possible) if your budget is tight. My advice for potential first home buyers’ is don’t fear higher interest rates as you will be borrowing less than the market at its peak.”
Read more: Reserve Bank makes its September rate call
Advice HQ founder and financial adviser David Green (pictured above right), said the RBNZ remained in catch-up mode as high inflation stayed in play, as confirmed by recent releases on unemployment rates and wage growth.
“The RBNZ will want to ensure they leave nothing on the table for their summer recess with the next OCR announcement not until February 22, 2023,” Green said. “Fixed mortgage rates have largely priced in future OCR rises courtesy of banks wholesale fundings costs, so if the RBNZ keeps to the same playbook, we should only see floating rates rise.”
“A flat yield curve indicates markets expect rates to flatten at some point in the future, so the Monetary Policy Statement (MPS) will determine if markets need to adjust these expectations and subsequently fixed rates. The biggest impact on borrowers may be behind the scenes if banks increase servicing test rates further and this will offset benefits from falling house prices by limiting lending capacity.”
