The Reserve Bank surprised everyone yesterday hiking the official cash rate 50 basis points instead of the predicted 25 points.
It has made economists revise their forecasts for the next OCR announcement. Here’s what some of them are saying:
While further increases are now on the cards, Kiwibank warns it could be a step too far.
“Even if it is a step too far, it’s a step they are clearly willing to take (and they can mop up afterwards). We continue to highlight the risk of overtightening. The reality of which rises with every move.”
BNZ economist Stephen Toplis explained the RBNZ's move as follows:
“When push comes to shove, perhaps today’s decision had very little to do with economic conditions and more to do with the fact that falling global interest rates had driven New Zealand wholesale rates lower. The Reserve Bank was clearly uncomfortable with this so felt the need to haul on New Zealand’s anchors to offset the potential impact of this.
“The Committee was comfortable that current lending rates faced by businesses and households will help ensure core inflation and inflation expectations begin to moderate. However, wholesale rates have fallen significantly since the February Statement, and this could put downward pressure on lending rates. As a result, a 50 basis point increase in the OCR was seen as helping to maintain the current lending rates faced by businesses and households, . . . “
“In our opinion, it would have been better to raise the cash rate by 25 basis points and caution that further rate increases would be likely if labour market conditions and inflation did not move in the desired manner. There was no need to go like a bull-at-a-gate at this juncture. This is not the start of the tightening cycle.”
The question now is where will home loan rates go?
Looking back at history using Good Returns' comprehensive database of home loan rates would suggest rates will rise.
Click here to see ANZ's two-year fixed rate v the OCR from 2002 to today.
The three times the OCR was at 5.50% the two-year fixed rate was higher than it is today.
With falling global interest rates, the need to increase fixed rates this time around maybe unnecessary.
« Relying on banks’ calculators not enough for advisers | Mortgage rates not likely to move » |
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Sometimes the two methods result in the same answer, but not always.
My question to them all would be "what were the signals from RBNZ spokesmen that they saw in the last several weeks that led them to discount the previously signalled 50-75 bp increase.
And no the answer shouldn't be the failures of SVB and CS led us to believe the RBNZ would go wasy. What did RBNZ say about those events if anything?