Find out the new official rate
The Reserve Bank of New Zealand has lifted the official cash rate by 50 basis points to 3.00%, with lender interest rates expected to rise in due course.
Wednesday’s increase is the seventh OCR rise in the last 12 months. In September 2021, the rate was 0.25% with the first rate hike occurring in October 2021.
The RBNZ is expected to continue lifting the OCR at least for the remainder of 2022.
The Committee agreed it remained appropriate to continue to tighten monetary conditions at pace to maintain price stability and contribute to maximum sustainable employment.
The RBNZ said core consumer price inflation remains too high and labour resources remain scarce.
Global consumer price inflation has continued to rise with some recent reprieve from lower global oil prices. The war in Ukraine continues to underpin high commodity prices, with global production costs and constraints further exacerbated by supply-chain bottlenecks due to the ongoing COVID-19 health challenge. The outlook for global growth continues to weaken, reflecting the ongoing tightening in global monetary conditions.
The Committee members agreed that monetary conditions needed to continue to tighten until they were confident there was sufficient restraint on spending to bring inflation back within its one – three percent per annum target range.
Responding to the RBNZ’s latest move, Auckland brokerage Prosperity Finance director and founder Connie Wang (pictured above) said rising interest rates would affect people in a number of ways.
“More and more people will be concerned about their cash flow after today’s announcement,” Wang said.
“Existing borrowers who fixed at low rates last year will face the reality of rolling into more than doubled rates, coupled with the cost-of-living crunch. Meanwhile, those who are looking to purchase properties will worry about their repayment ability and investors will have a bigger cashflow gap.”
Wang said first home buyers would find it more difficult to obtain finance due to a lack of deposit lending and increased test rates.
“Interest rates and test interest rates go hand in hand as the test rates are more likely to increase when the actual interest rates increase. As a result, people’s borrowing capacity will be reduced or [they will] even be declined,” she said.
“There will be increased competition between banks for new home loan business which will get stronger as they cannot write more new loans,” she said.
“As advisers, we will be busier helping our clients navigate the best solutions on offer as borrowers will need financial advisers now more than ever to help with their loan application, loan structure and rates advice. We will be in great demand.”
Wang said New Zealanders wanting to prepare for future rate increases should speak with a mortgage adviser to get tailored advice.
“Many people will see their loan repayment after refixing has more than doubled and it will be a bigger shock for people whose loans are coming off the fixed term and the interest-only terms also expire,” she said.
“They will be paying principal on top of the higher interest rates and their loan repayment will increase much more as a result.”
Wang said New Zealanders need to be prepared and have strategies to cope for future OCR rises.
“Have a conversation with an adviser as early as possible so you can have enough time to work through solutions,” she said.
“Many economists predict rates will peak in 2023 so we still expect an almost 1% rate increase over the next 12 months. Most banks allow 60 days in advance to lock interest rates, so by locking in early it will help hedge interest rates. Even if the rate reduces after the rates lock, most banks only charge $25-$30 to cancel the lock rates contract, so this will be a much safer position to be in if you act early.”
