Interest rates NZ

NEW ZEALAND'S central bank on Wednesday (Aug 17) delivered its seventh straight interest rate hike and signalled a more hawkish tightening path over coming ...

How far will the RBNZ need to go to beat inflation?

It expected to see inflation back in its target range of 1-3 per cent by mid-2024. In these circumstances, spending and investment continues to outstrip supply capacity, and wage pressures are heightened. Wholesale interest rates remained steady, the two-year swap trading at 3.93 per cent. Previously it had forecast a peak of 3.95 per cent. Consumer Price Index inflation is sitting at 7.3 per cent - well outside the RBNZ target of 1-3 per cent. However, production is being constrained by acute labour shortages, heightened by seasonal and Covid-19-related illnesses.

Reserve Bank now forecasts a slightly higher peak for the Official Cash Rate of over 4% by June next year.

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Many economists are expecting it to jump up to 50 basis points to 3%.

[food prices rose 6.6% on last year.](https://www.1news.co.nz/2022/07/13/cost-of-food-continues-to-rise-prices-up-66-on-last-year/) [OCR sits at 2.5%](https://www.1news.co.nz/2022/07/13/official-cash-rate-hits-25-as-inflation-soars/) after the Reserve Bank's last announcement on July 13. The Reserve Bank will make an announcement on the official cash rate today with many economists expecting it to jump up to 50 basis points to 3%.

New forecast sees the key interest rate hitting 4% earlier than the central bank previously predicted next year.

“A few details suggest the Reserve Bank has a greater propensity to keep hiking. “However, we remain of the view that tightening is unlikely to continue into next year. And I know that the monetary policy committee sleep straight at night. “Retaining integrity is really important to us here at the bank. The record of the meeting noted there was talk about whether or not to lift by more than 50bp, which flags where the Reserve Bank sees the risks around the OCR at the moment,” he said. “The statement sounded a bit more downbeat about the outlook for activity as the bank sharply revised lower its forecast for residential investment, which it now expects to fall by a cumulative 6% over the coming quarters,” he said. Its previous monetary policy statement in May had implied the OCR would only reach its peak by the middle of next year and would stay at about 4% until late the following year, before then starting to slowly drop. The Reserve Bank hiked the official cash rate by 50 basis points to 3% on Wednesday as it continued to tighten monetary policy to bring down inflation. Orr said the role involved receiving “feedback and criticism” and it was important the bank was seen as a learning institution, “which we are”. The bank would be conducting a review of its monetary policies over the past five years and that would involve seeking the views of independent overseas experts, he said, adding that he didn’t want to prejudge the outcome of that review. Orr said he did regret that people were experiencing “the ongoing tails of Covid and current high inflation” but said the role of the bank was “about playing the cards that are in your hand at the time, as best as you can through time”. Speaking at a media conference explaining the Reserve Bank’s latest monetary policy statement which saw the central bank raise the official cash rate by 50 basis points to 3%, Orr said his candidacy was not something he wanted to talk about.

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.

Most banks allow 60 days in advance to lock interest rates, so by locking in early it will help hedge interest rates. We will be in great demand.” As a result, people’s borrowing capacity will be reduced or [they will] even be declined,” she 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. The outlook for global growth continues to weaken, reflecting the ongoing tightening in global monetary conditions. Wednesday’s increase is the seventh OCR rise in the last 12 months.

New Zealand's central bank on Wednesday delivered its seventh straight interest rate hike and signalled a more hawkish tightening path over coming months to ...

Bank bill futures for March slid 13 ticks to 95.76, while two-year swap rates rose 6 basis points to a three-week top of 3.97% . "They're more worried about the labour market, that's sticking out. Register now for FREE unlimited access to Reuters.com They put a new sentence in there to say inflation remains too high and the labour market remains too tight." The RBNZ also increased the projected peak for the cash rate to 4.1% where it expects it to remain into 2024. "The Committee agreed that domestic inflationary pressures had increased since May and to further bring forward the timing of OCR increases," the central bank said in a statement.

The Reserve Bank has raised the official cash rate (OCR) to a seven-year high and signalled more rises until it gets inflation under control.

(and) with fewer property transactions taking place - hence less new lending - there's a lot of focus in the banking sector on existing borrowers and keeping market share." A range of indicators highlight broad-based domestic pricing pressures." In these circumstances, spending and investment continues to outstrip supply capacity, and wage pressures are heightened. Orr said the RBNZ had been "playing the cards that are in your hand at the time, as best as you can", but said the central bank had engaged two international consultants with central bank experience to review its actions and policies. The MPC's forecasts pointed to cash rate rises likely in October and November at least to 3.75 percent by the end of the year and pushing possibly as high as 4.25 percent by the middle of 2023, with little prospect of rate cuts before late 2024, when inflation was expected to return to the target 1-3 percent target band. "It remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and contribute to maximum sustainable employment," the MPC said in a statement.

New Zealand raised its key interest rate by another half-percentage point and sees it climbing to at least 4%, cementing the central bank's place at the ...

Reserve Bank defends use of quantitative easing, saying it did so because it was 'constrained' from taking the Official Cash Rate into the negatives.

The guts of the policy was to encourage NZrs to borrow to spend to stimulate the economy. Just the announcement of the intention to do this saw the market yield drop to that level without the RBA having to purchase many bonds itself. RBNZ simply charged in and bought large quantities of bonds right across the yield curve, In contrast the Reserve Bank of Australia started off with yield curve control, aimed at holding the yield on govt bonds out to three-year maturities at 0.1%. The OCR pre covid, was already wound down to as far as it could be and whatever stimulus that provided had already been well & truly spent. "While difficult to quantify, Table 5 offers a brief assessment of the risks associated with the deployment of the LSAP and FLP." The banking system is now in a position to accommodate negative interest rates, and this will form part of the monetary policy toolkit in future," the RBNZ said. "By early 2020, with the global onset of the COVID-19 pandemic, the need to deploy additional monetary policy tools became increasingly apparent. The Reserve Bank (RBNZ) has conceded that its monetary policy was "too stimulatory" at some stage during the response to the pandemic. "This raised serious concerns about any unintended impacts of a negative OCR on the efficient functioning of the New Zealand financial system. The RBNZ will publish this work towards the end of 2022." The bank says that to ensure this assessment is fair and transparent, it will be externally peer reviewed by two international experts on monetary policy. It appears to imply that a negative OCR would be the preferred path in future.

Former National party leader Simon Bridges has stepped onto the business stage this morning as chief executive of the Auckland Business Chamber, ...

"The message is clear. "If our settings are less welcoming than other countries like Australia, Canada, US and the UK ... He gave credit to the Reserve Bank for being early to raise rates - and echoed the view of local economists: that New Zealand could avoid recession. The Government had a "laudable aspiration to lift wages" and get the most vulnerable New Zealanders into work, he said. Lack of ability to hire from overseas was the key issue for business right now, he said. The latest survey of chamber members showed that was far and away their biggest issue, he said.

The global decline in interest rates, and restrictions on land supply were key to house price rises over the last 20 years, a new Treasury report says.

Identifying where land is most restricted in supply, and what policies will help make more available is key, and will change the situation over time.” You can make a contribution from as little as $1. Section prices increased by 405%, but 658% in Hamilton City. As interest rates had lifted the likely outcome would be downward pressure on house prices in the short term, and long-term that would be aided by changes to the tax system and the availability of land, he said. The group now planned to focus on work around improving understanding of urban land supply and the drivers of rents. The more restricted the supply of land, the more tax changes would be captured as changes in the value of land, rather than affecting incentives to build more homes and reduce rents, Stephens said. “Instead, much of the fall in interest rates was captured by higher urban land prices, and those higher urban land prices led to higher house prices without increasing the incentive to build dwellings.” The report’s goal was to provide an assessment of the key market drivers of the last 20 years, and it focussed on the Hamilton-Waikato area to generate insights for the rest of the country. [a capital gain tax](https://www.stuff.co.nz/business/300252483/conversations-about-capital-gains-tax-miss-the-benefits), would be borne by renters, but if a change was to be introduced, it would be more likely to be captured in land prices.” Evidence of this could be found in the fact that while supply and demand should affect rents as well as prices, prices had increased far more than rents, and the price of land rose much further than the cost of constructing new homes. The global decline in interest rates and restrictions on land supply have been the main causes of higher house prices over the last 20 years, a new report says. While factors such as population growth and construction costs played a more modest role, the report found that land supply restrictions also influenced how the tax system affected prices relative to rents.

Government working group concludes lack of housing supply relative to population a key driver of rising house prices over recent decades.

This had two effects: the desired (Hamilton prices took off), and anyone who could afford to relocated to nearby towns in Waipa. Unless someone can tell me a better way to spend tax dollars, I think we need to form a new committee and have a committee meeting to discus the findings of this exceptional and world class report. "In the context of restrictions to land supply,...." Throughout the books that were published and the lectures and training courses that were available led people to the tax loopholes/advantages in being able back then to write off your interest payments against your personal income. But only because of the restrictions in the system, the major one being land. The cost and availability of credit was the leading cause which was exacerbated by the restricted land supply, excessive immigration and a favorable tax system I've dealt with people who've been unable to get insurance (and therefore a mortgage) unless their roof has all the nails removed and refixed with screws. People working in real productive jobs can't financially compete, forced to take on unsustainable debt / risk. "But physical supply and demand should affect rents as well as prices, and over the past 20 years house prices have risen more than rents." I said why not have 2 types of consents, the current process where council assumes responsibility and hence goes OTT to make sure it’s done right, and a streamlined process where an inspector just turns up a couple of times to make sure it’s safe. We have half the population density of the US. It has been studying the drivers of house prices and rents and the impact these have had on New Zealand households.

The OCR is now sitting at its highest level since September 2015. With inflation high and unemployment low, economists from CoreLogic NZ, Kiwibank and Westpac ...

We expect that will become more evident to the RBNZ by the November review.” “We have another 100bps of tightening to come,” he said. “New investors may also be finding it harder to make the sums stack up in a world where rental yields are still low and financing costs are much higher,” he said. “The housing market faces plenty of challenges yet,” he said. “With fewer property transactions taking place, there’s a lot of focus in the banking sector on existing borrowers and keeping market share.” “In essence, not a huge amount changed in terms of their forecasts although the ‘hawkish’ language used suggests they’re still keenly focused on inflation and doing what it takes in terms of OCR increases to quell those price pressures.”

Rising building costs and population growth didn't drive up house prices as much as low interest rates, our distorted tax system and short land supplies, ...

The first and the second distortions also increase the investment value of housing compared to other investments. Compared to other major centres, the Waikato has fewer natural constraints. The Waikato had geographic and natural constraints on housing expansion: "Highly productive soils, deep peat soils, rivers and high-risk flood zones from wetlands. The most important tax distortions are: "If land supply had been more responsive, this would have sparked a larger housing supply response, moderating any initial lift in house prices and putting downward pressure on rents. "Higher urban land prices led to higher house prices without increasing the incentive to build dwellings."