Fresh signs that inflation is not yet under control have led to warnings of another punishing hike in interest rates.
Ahead of next month’s Official Cash Rate decision, OneRoof spoke to leading Kiwi economists about the Reserve Bank of New Zealand’s efforts to tame inflation, currently running at 6%.
They had mixed views on whether or not the RBNZ should lift the cash rate again, but all agreed any rise would inevitably result in higher interest rates.
More than half of Kiwi mortgage-holders are due to refix the terms of their home loans in the next 12 months and many are staring down the barrel of increased repayments, with the standard one and two-year rates offered by banks now well above 7%.
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Westpac chief economist Kelly Eckhold said while the OCR was unlikely to budge at the next announcement on October 4, there was growing belief that it would rise another 25 basis points to 5.75% within the next six months.
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Recent data showing the economy had performed better than expected in the second quarter of this year, lifting the country out of recession, could put pressure on the RBNZ to lift, not cut, the OCR.
Eckhold said there was a 50/50 chance that the hike would come in November. “The reality is if the Reserve Bank does make another adjustment of interest rates, you would probably expect wholesale interest rates to be a bit higher than they are now,” he said.
Eckhold said the RBNZ would be watching the Consumer Price Index report in mid-October, as well as other data released in the next six weeks before making a final call.
CoreLogic chief economist Kelvin Davidson agreed there was a risk that the OCR could be lifted, on the back of recent economic data, but he didn’t rate the chances as high as 50/50.
He said the next CPI and labour market statistics were more likely to influence inflation rather than the election, adding there was still not enough detail in parties’ policies to determine what impact a change in government could have.
Both major parties have announced tax changes, although National has promised a sweep of tax cuts if it takes power.
“I just think at the moment we are pretty finely balanced, and people just talk about watching the data,” Davidson said.
Westpac chief economist Kelly Eckhold says mortgage rates are likely to rise further if the RBNZ lifts the Official Cash Rate. Photo / Fiona Goodall
While most of the major banks have flagged the possibility of another OCR rise, Kiwibank chief economist Jarrod Kerr believes the next rate change will be a cut of 25 basis points in May.
“I think the next move for interest rates is down, not up,” he said.
The May 2024 drop would likely be the first of several drops to both the OCR and therefore interest rates next year, he said.
“We think that the cash rate will be on hold in November and the next move we are hoping will be a rate cut in May next year. So still some time away.”
Kerr said most of the movement around interest rates had happened and inflation was on track to move down.
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