Kiwibank chief economist warns about impacts of OCR increase

Economists predict OCR increase in the near future

Kiwibank chief economist warns about impacts of OCR increase

The Reserve Bank of New Zealand’s (RBNZ) latest official cash rate (OCR) decision left economists expecting an increase in the near future – and now Kiwibank chief economist Jarrod Kerr has identified how an increase would impact “just about everyone.”

The RBNZ kept the OCR at its current level of 0.25% in its latest Monetary Policy Review as the global economic outlook has “continued to improve.” It agreed to reduce the stimulatory level of monetary settings to meet its objectives over the medium term, pushing economists to expect an increase in OCR in the near future.

Kerr forecast at least three interest rate rises from the central bank within a year. However, he warned that an OCR increase would affect “just about everyone” to some degree.

“What they’ve said is that they want to remove some of the policy stimulus out there, and that’s their way of saying we’re going to stop buying bonds, we’re going to stop the quantative easing programme, and we’re going to let wholesale interest rates lift,” Kerr said, as reported by NZ Herald.

Read more: RBNZ releases Monetary Policy Review and OCR decision

Kerr explained that the forecast interest rate rises could increase the current mortgage between 2% and 4% to 3% or 5%.

“We’re not talking massive increases like we’ve seen previously, but we are talking a good 1% from here, which will affect most people with debt, but it’ll also provide some relief to those that are savers,” Kerr added.

“We talk a lot about borrowers, but the people who were suffering the most in the last year were savers, particularly people who were having to live off their savings, so we will see term deposit rates continue to lift so that will provide some support to another part of the economy.”

Last month, wholesale interest rates lifted and were passed on to mortgage rates, other lending rates, and term deposit rates, Kerr said.

“2014 was the last time we saw a rate rise, so there are a lot of first-home buyers out there who have never seen a rate rise,” he said, adding that he expects many first-home buyers to renegotiate their mortgage rates if interest rates rise.

“A lot of people are on fixed [term], but a lot of people are also rolling off their fixed rates in the next six months, so we will see a lot of people coming down to the bank wanting to refix their mortgage rates,” he continued. “Now that interest rates are rising, they will most likely want to refix their rate for a longer term.”

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