In another attempt to control inflation, the Reserve Bank of New Zealand (RBNZ) has raised the benchmark interest rate by half a percentage point to 2.5%. This is the third time this year, following similar hikes in April and May, that the RBNZ has raised the official cash rate by 50 basis points.
The bank has also said that the rate may be expected to peak at 4% by late next year. Another hike may be considered during August Monetary Policy Statement. The RBNZ has stated that its policy-setting committee was comfortable with the aggressive policy path that has been projected in May and that expected interest rates to rise to almost 3.5% by the end of the year. The New Zealand dollar also fell by 0.3% following the announcement.
The new rate is the highest recorded since March 2016 but was expected by a majority of economists. Some had however predicted the government would take a softer approach due to the ongoing fall in housing prices and decline in business and consumer confidence. The RBNZ has however remained hawkish on its approach to curbing inflation which was reported to be at 6.9% as of March, its highest level in three decades.
The Monetary Policy Committee has said that a tight labour market and the low unemployment rate were helping domestic spending and that household finances were resilient. Strong exports were also contributing to supporting the economy alongside broad government spending. Price pressures were also being driven by labour and resource scarcity that had been worsened by the surge in Covid-19 cases, seasonal illness, and the net outflow of labour abroad.
The committee intends to continue lifting interest rates to a level where confident consumer price inflation will settle within the target range while still adhering to increments outlined in the May monetary statement.
It is tough news for mortgage borrowers as banks such as ASB and Kiwibank announced a rise in their mortgage rates in response to the recent official cash rate hike. ASB’s housing variable has risen to 6.35% from 5.85%. This goes into effect on July 20 for new borrowers and July 27 for existing borrowers. Their Orbit home loan rate will also increase to 6.45% from 5.95%.
Kiwibank’s variable home lending rate will rise to 6% from 5.5%, taking effect on July 18 for new borrowers and August 1 for existing borrowers. Besides the higher interest rates, first-time homebuyers are also facing increasing challenges in raising mortgage deposits.
According to First Home Buyers’ Club director, Lesley Harris, it could take the average person about 11.8 years to save for a deposit, unless helped by the bank of Mum and Dad. However, even those that benefit from such familial benevolence are being turned down for mortgages by some banks as they could not prove they had been the ones to save up a good portion of the deposit.
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