As 2024 unfolds, Kiwis find themselves bracing for further economic turbulence in the short term, with the cost-of-living crisis continuing to exert pressure on households. However, amidst these immediate challenges, there are glimmers of hope on the horizon, particularly for mortgage holders who may see relief in the medium to long term.
Mark Riggall, Portfolio Manager at Milford, acknowledges the ongoing struggle faced by Kiwis as they grapple with a cost-of-living crisis that has persisted for over two years. Despite recent months witnessing a slight moderation in inflation, which currently stands at 4.7 per cent—still above the Reserve Bank of New Zealand’s (RBNZ) target range of 1 to 3 per cent—the burden remains significant.
One of the contributing factors to the financial strain on households is the sustained high official cash rate (OCR), which stands at 5.5 per cent. Although the RBNZ has held the OCR steady for the past five meetings after a string of 12 consecutive hikes, the pressure on borrowers persists, exacerbated by the decision of thousands of Kiwis to re-fix their mortgages last year at higher rates, moving away from the lows witnessed during the COVID-19 pandemic.
Riggall cautions that despite recent trends, the outlook for interest rates remains uncertain. While some anticipate a potential hike in the short term, with local banks advocating for increases, others speculate about the possibility of rate cuts. Riggall emphasises the complexity of the current economic landscape, particularly in determining the timing and direction of monetary policy adjustments.
However, amidst the uncertainty, Riggall offers a silver lining for mortgage holders. He predicts that even if there is a rate hike in the near future, it is likely to be followed by subsequent cuts. The strain imposed by the current cycle of rate hikes suggests that the economy may struggle to sustain such measures in the long run, hinting at a potential conclusion to the tightening phase.
Echoing Riggall’s sentiments, independent economist Cameron Bagrie warns of the possibility of a short-term rate hike, citing shifts in market sentiment. Despite initial optimism regarding the trajectory of inflation and interest rates, recent developments have prompted a reassessment. Bagrie highlights the need for a nuanced approach, cautioning against overly optimistic expectations of imminent rate cuts.
As Kiwis navigate through these uncertain times, the road ahead remains fraught with challenges. However, the cautious optimism expressed by experts suggests that while difficulties may persist in the short term, there is reason to believe in a more favourable longer-term outlook. For mortgage holders in particular, the prospect of eventual relief offers a ray of hope amidst the prevailing economic uncertainty.
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