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Mortgage rate cuts a way off yet

OCR cuts and lower interest rates are not in sight even though inflation fell to 6% in the latest quarter.

Wednesday, July 19th 2023, 6:55PM

by Sally Lindsay

Inflation looks unlikely to be back within the Reserve Bank’s 1-3% target band before the latter part of next year.

The Consumers Price Index fell in the June quarter from 6.7% in the first quarter and while there have been some big swings in some specific prices, the bigger focus for the RBNZ is the longer-term trend in prices.

Although the activity front shows signs demand is cooling, including sluggish retail spending, the economic cycle may still have some legs (such as the turnaround in net migration and signals the housing market may be heating up again), says Satish Ranchhod, a Westpac senior economist.

“Putting this all together, we continue to see the risk that the RBNZ will need to raise the OCR again.”

Contributors

Food is still the biggest contributor to inflation followed by housing – both construction and rents.

Building a new house increased 7.8% in the June quarter after an 11.5% rise in the first quarter of the year. However, the influence of the two-year swap rate on mortgages has stayed relatively steady at .5.3%.

Core inflation strength

“While inflation is lower, it is not low by any stretch of the imagination,” Ranchhod says.

“Importantly, measures of core inflation are continuing to run at rates of around 6%, and some have actually picked up in the June quarter. That points to lingering strength in underlying price pressures.

“Similarly, domestic inflation (aka non-tradables inflation) remains elevated at 6.6%. 

“Those simmering underlying price pressures mean that inflation is unlikely to return within the RBNZ’s target band any time soon.”

He says notably, several core measures have pushed higher over the past few months, highlighting the continued strength in pricing pressures.

Looking across the broad product groups, domestic (aka non-tradable) prices were up 1.3% in the June quarter and have risen by 6.6% over the past year. “The RBNZ pays particular attention to non-tradables inflation given its close connection to the strength of domestic economic conditions,” Ranchhod says. 

The central bank had forecast non-tradable prices to rise 1% over the quarter, and 6.3% in the year to June. “Non-tradables inflation is lingering at high levels, and has only nudged back slightly in the 18 months since the RBNZ began raising the OCR.

Prices for imported goods (sometimes referred to as tradables) rose by 0.8% over the past three months and are up 5.3% over the past year. That’s a further step down from the rates we saw last year, Ranchhod says. “However, that’s mostly due to the fall in fuel prices. Other tradable prices are up 8.4% over the past 12 months.”

What does today’s result mean?

While the CPI was in line with the RBNZ’s forecast, Ranchhod suspects the underlying details of the inflation report were actually firmer than the central bank anticipated.

In particular, non-tradables inflation is yet to show material signs of cooling. Excluding building costs, non-tradables inflation picked up to 7.1% in the year to June (vs 6.5% in the year to March), with services prices up 6.1% over the past year.

In its recent policy updates, the RBNZ signalled that it expects to keep the OCR at the current level of 5.50% for some time yet. However, Ranchhod says with underlying price and wage pressures remaining firm, the RBNZ still has a rocky road ahead.

Tags: inflation

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 ▼6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.14 6.79 6.65
ASB Bank 8.64 7.14 6.75 ▼6.39
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - ▼7.14 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 ▼7.74 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - ▼6.79 - -
Co-operative Bank - Owner Occ 8.40 ▼6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 ▼7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.89 6.55 6.35
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 ▼6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 ▼7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - ▼6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 ▼7.74 7.29 6.59
SBS Bank Special - ▼7.14 6.69 5.99
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 ▼6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.89 7.35 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.75 6.65
Median 8.64 7.21 7.29 6.65

Last updated: 17 May 2024 9:41am

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