The Reserve Bank of New Zealand (RBNZ) has announced that it will be holding the official cash rate at 5.5 per cent as part of its Monetary Policy Statement. This is in keeping with analysts’ predictions and reaffirms the reserve bank’s position that the rate has reached a high enough level to slow inflation.
The RBNZ has also said that the rate would need to remain restrictive for the foreseeable future as it targets bringing down the annual consumer price inflation to the one to three per cent range. The inflation rate is currently at 6 per cent but is expected to drop down within the target range by the second half of 2024. The policy statement indicated that there may still be a slight chance of a further rate hike during the fourth quarter.
Despite the optimism, the RBNZ also noted that domestic core inflation pressures remained high. With the OCR helping to restrict domestic spending as predicted, a slowing global economy, cooling housing and labour market were expected to also aid in lowering inflation
With economic activity having risen in the second quarter ending in June, the third quarter inflation is predicted to rise to 2.1 per cent. Recession forecasts have thus been pushed further into the third and fourth quarters of the year.
ANZ chief economist, Sharon Zollner, said that inflation was likely to be harder to bring down once lower global goods disinflation works its way through to the local economy. She remains doubtful that an OCR rate of 5.5 per cent would be enough to lower inflation to the target range within the estimated time frame. ANZ is therefore predicting that a 25-basis point hike will be announced in November.
While BNZ chief economist, Stephen Toplis, also believes more rate hikes will be announced, he does not anticipate such an announcement for November. He is however warning that the expected recession may turn out to be more aggressive than estimated. He pointed to recent surveys from the manufacturing and services sectors that were reportedly very negative.
With the last rate hike in May likely to hit many mortgage holders soon, those already struggling to keep up with repayments are being advised to seek solutions sooner rather than later. Stephen Robertson, mortgage adviser at My Money is warning that using credit cards and other short-term credit solutions is likely to just push the problem further down the road. He is advising those expecting a rate rise to get in touch with their lenders as soon as possible to find solutions.
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