Reserve Bank governor Adrian Orr says that savers need to find ways of putting their capital “more to work” given the low interest rates, and should think about generating new investments rather than letting their money simply sit in a bank account.
Orr told the finance and expenditure select committee that the Reserve Bank’s aim with the latest OCR cut was to give spending a boost, and encouraged New Zealanders to make the most of an environment where the hurdles for business investment are vastly reduced.
“When you have lower interest rates you have to be thinking much harder around the form of investment,” Orr said.
“The form of investment means putting your capital more to work, which is about creating real investment rather than just sitting in the bank account with all of the returns going to the owners of the bank.
“Somehow in the psyche of New Zealand, we all have to rush toward thinking 'oh well, it must mean I have to rush to borrow to buy a house'. We are not saying that. We are saying spending and investing is now much easier.”
Orr also noted that if customers, businesses and the government do not increase spending as much as projected, interest rates will have to drop further.
Pope & Co Mortgages founder Craig Pope says the latest OCR cut may well trigger more investment property purchases, as savers look to maximise their returns beyond what current interest rates can offer.
However, Joe Bishop, general manager customer, product and innovation at Kiwi Wealth says that most investors focus too heavily on the local market, and there is a need for access to larger global markets if investors are to effectively manage their risk. He noted that 71% of New Zealanders don’t believe they have a diversified portfolio, with the majority of investments being in property, KiwiSaver, savings accounts and term deposits.
“It’s a concern that nearly three-quarters of New Zealanders don’t feel they have a diversified portfolio,” Bishop said.
“You need other parts of your portfolio, including KiwiSaver, compensating. If you have everything going in one direction the danger is that everything can fall over at the same time.
“The need for options and expertise to access larger, more liquid global markets is essential to managing risk and maximising returns.”