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Businesses holding up OCR cuts

Businesses must realise that despite their costs jumping 10%, they can only raise prices 2% and must find savings and boost productivity, otherwise monetary policy won’t be eased and interest rates won’t fall.

Friday, May 10th 2024, 10:06AM 1 Comment

Independent economist Tony Alexander says just as the Reserve Bank monetary policy over-loosened during and post the pandemic, it has now over-tightened and at some point it will cut interest rates rapidly. His best guess is just before the end of this year.

“Before then the RBNZ will hold out with minimal comment for as long as it can with good justification for doing so because of one central thing. “Businesses are still planning to raise their selling prices and have yet to completely capitulate to the altered economic environment.”

He says householders, particularly those with mortgages, are doing their part in drastically cutting back spending. The central government is as well. Councils are not and neither yet are businesses. “The ball essentially is in their court. Customer demand won’t come back until they give in.”

The longer businesses take, the worse will be this end-game period for monetary policy tightening, Alexander says.

“It takes 18-24 months for tight monetary policy to have its greatest impact on inflation. Householders might think that because the first cash rate increase came in October 2021 that we should see falling interest rates now because 31 months have passed since then.

“But the initial rate rises were only 0.25% and we did not get the 0.75% jump and warning from the Reserve Bank of recession until November 2022. In May 2024 we are only 18 months along from that shock tightening.”

He says only now is the country in the really intense period of the deepest grinding into cash flows and attitudes of policy tightening.

“It is going to be a challenging winter for many businesses.”

Mortgage holders, he says, might think their only hope of an early policy easing from the RBNZ will be if the Government delivers extra tightening of fiscal policy in the 30 May Budget.

But with tax cuts planned, that is unlikely and even if the Government did radically tighten things up the early interest rate, falls will only go to offset the new source of downward pressure on the economy anyway.

Tags: OCR

« Mortgage borrowers hedge their bets on OCR coming down soonAdvisers aid in discounting from headline rates: ANZ »

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Comments from our readers

On 10 May 2024 at 12:28 pm Andy the adviser said:
Now I find that quite amusing.

Land Information New Zealand has just increased their title search fee from $6 to $9 (50% increase!), and Registration Fees from $90 to $117 (30% increase!).

And it is all automated anyway. So there is no need to increase those costs.

I smell a rat!

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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 7.74 7.35 6.99
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 7.65 7.25 -
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 ▼7.09 ▲6.95
SBS Bank Special - 7.14 ▼6.49 ▲6.35
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 7.84 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.24 6.75 6.39
Median 8.64 7.19 7.17 6.65

Last updated: 19 June 2024 3:59pm

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