The banking industry expects the official cash rate (OCR) to increase over the next few years. However, an ANZ economist has warned that even a small OCR increase could hit mortgage holders.
Like other banks in New Zealand, ANZ expects the OCR to increase by 400% - from the current 0.25% to 1.25% - by the end of 2023. Meanwhile, ASB forecasts that the OCR would hit the mark in early 2024.
ANZ chief economist Sharon Zollner has warned that an OCR increase could increase the cost of paying down a mortgage. However, first-home buyers (FHBs) still hoping for a break might have to wait a bit longer.
“There is no question that the picture is evolving and that it is getting harder to argue that super-stimulatory monetary policy is the medicine that the economy needs for a prolonged period,” Zollner said, as reported by Newshub.
Last year, interest rates plummeted to stimulate the economy when it took a hit from the COVID-19 pandemic and the lockdowns.
Independent economist Cameron Bagrie commented: “It’s a sign that the Reserve Bank is on track to meet what’s called their remit – full employment.
“We’ve got unemployment now down to 4.7%, and it’s dropping. Inflation pressures are moving up. So the economic story here is a good one, a successful one – when you’ve got that economic success story, you don’t need interest rates as low for so long.”
Earlier this month, Zollner claimed house prices would not drop until the OCR rises. Although it could be good for those looking to buy, current owners could see a dramatic increase in costs.
Bagrie commented: “The flipside is that someone pays. So, if ANZ is correct and we get 100 basis points’ worth of OCR increases in the next 30-odd months, you’re going to see the likes of a one-year fixed mortgage rate go from 2.25% to 3.25%. [That’s] still really, low, still really cheap money, but that’s about a 45% increase in your interest bill, and that’s not a small number.”
Even with the economy thriving again, Bagrie predicts that interest rates would not rise to the levels they were three or four years ago as “there’s just still too much uncertainty.”
Zollner added: “We expect the RBNZ will continue to strike a cautious tone and stress that considerable monetary stimulus remains appropriate and is expected to remain so for quite some time yet while the dust settles and the true economic picture becomes clearer.”
“There’s still a lot of uncertainty out there, absolutely. But there is no question that the picture is evolving and that it is getting harder to argue that super-stimulatory monetary policy is the medicine that the economy needs for a prolonged period.”