Property

OCR increases but more moderate pace to come

Reserve Bank Governor Alan Bollard raised the Official Cash Rate (OCR) a quarter point to 3%, while predicting a less aggressive path for further increases - good news for floating mortgage rates.

Thursday, July 29th 2010

"While the outlook for economic growth has softened somewhat, it is still appropriate to continue to reduce the extraordinary level of support implemented during the 2008/09 recession," Bollard said in Wellington today.

"The pace and extent of further OCR increases is likely to be more moderate than was projected in the June statement."

While floating interest rates are set to rise after the increase, they won't do so as hard or as fast as previously thought, due to the more dovish angle Bollard took on further increases than was expected.

Recent data and confidence measures point to an economy that has slowed to a more tepid pace of growth, easing pressure on the central bank to embark on an aggressive tightening.

Business confidence weakened for a third straight month, according to the National Bank Business Outlook, with firms seeing smaller profits and reducing plans to hire more workers.

Demand in the housing market has remained weak, net migration is waning and consumers are less inclined to spend as they reduce leverage.

"The momentum evident in activity and inflation is presently insufficient to justify a hike in the OCR at every meeting this year," Darren Gibbs, chief economist at Deutsche Bank, said before the RBNZ statement was released.

Today's rate hike was predicted by all 20 economists in a Reuters survey and they expect Bollard will continue to lift the OCR back to more normal levels, ending the extraordinary stimulus in place since April last year when he cut the OCR to a record low 2.5%.

The RBNZ resumed raising interest rates on June 10. Since then data has shown the economy expanded 0.6% in the first quarter, less than the bank's 0.8% forecast.

The dilemma for Bollard is to predict how inflationary pressures will have emerged over the next 18 months, with a risk that the short-term effects of increased government levies and imposts, such as the costs of the Emissions Trading Scheme, GST hike and ACC charges will feed through into broader inflation expectations.

Inflation is expected to spike to over 5% in the first quarter of 2011 though Bollard has said he sees little ongoing impact, with the GST increase softened by tax cuts. Still, business surveys shows firms are preparing to raise prices and the extent of second-round impacts isn't clear yet.

Heartland Bank - Online 6.69
SBS FirstHome Combo 6.74
Wairarapa Building Society 6.95
Unity 6.99
Co-operative Bank - First Home Special 7.04
ICBC 7.05
China Construction Bank 7.09
BNZ - Classic 7.24
ASB Bank 7.24
ANZ Special 7.24
TSB Special 7.24
Unity First Home Buyer special 6.45
Heartland Bank - Online 6.45
China Construction Bank 6.75
TSB Special 6.75
ICBC 6.75
ANZ Special 6.79
ASB Bank 6.79
AIA - Go Home Loans 6.79
Kiwibank Special 6.79
BNZ - Classic 6.79
Unity 6.79
Westpac Special 6.39
China Construction Bank 6.40
ICBC 6.49
SBS Bank Special 6.55
Kiwibank Special 6.55
BNZ - Classic 6.55
Co-operative Bank - Owner Occ 6.55
ASB Bank 6.55
AIA - Go Home Loans 6.55
TSB Special 6.59
Kainga Ora 6.99
SBS FirstHome Combo 6.19
AIA - Back My Build 6.19
ANZ Blueprint to Build 7.39
Credit Union Auckland 7.70
ICBC 7.85
Heartland Bank - Online 7.99
Pepper Money Essential 8.29
Co-operative Bank - Owner Occ 8.40
Co-operative Bank - Standard 8.40
First Credit Union Standard 8.50
Kiwibank 8.50

More Stories

Support for regulation

Monday, March 18th 2024

Support for regulation

REINZ has emphasised the need for property management regulation to Parliament’s Social Services and Community Committee.

A better investment market

Thursday, March 14th 2024

A better investment market

“Reinstatement of interest deductibility starting from the new tax year on 1 April brings property investors back in line with every other business in the country, where interest costs are a legitimate deductible expense," Tim Horsbrugh, New Zealand Property Investors Federation (NZPIF) executive committee member says.

[OPINION] Recessionary times

Thursday, March 14th 2024

[OPINION] Recessionary times

It is not the best out there for many businesses and property sector people. Sales are down across the board, our clients’ confidence is falling, and there is a lot of uncertainty.

Interest rate expectations: It’s not over yet

Thursday, March 07th 2024

Interest rate expectations: It’s not over yet

Most Kiwis think interest rate increases have peaked.