The Reserve Bank raised the official cash rate by 25 basis points to 0.5%, ending an 18-month period at the record rate of 0.25%.
ANZ, the country’s largest bank, announced within minutes that it was raising interest rates on its floating and “flexi” home loans by 0.15 percentage points, taking its floating rate to 4.59%.
Kiwibank followed suit, announcing that its floating and compensated mortgage rates would rise 0.25 percentage points to 4 percent, and its revolving rate by the same amount to 4.05 percent.
The official exchange rate hike is the first since 2014, when OCR hit a post-GFC peak of 3.5%.
The rate hike had been universally expected by banking economists, who expect it to be the first in a series as the central bank seeks to control inflation.
* The official treasury rate is expected to rise 25 basis points on Wednesday
* Who will pay the price for the $ 54 billion spent on quantitative easing?
* The expected interest rate hike in October may not be fully allocated to mortgages until April
* Adrian Orr: Decision to maintain the official cash rate “literally in the uncertainty of the day”
The Reserve Bank said the current Covid-related restrictions had not “significantly changed the outlook for inflation and medium-term employment” as they delayed an expected interest rate hike in August, foreshadowing that inflation would temporarily exceed 4%.
“Capacity pressures remain evident in the economy, especially in the labor market,” the central bank said.
“A wide range of economic indicators underscore that New Zealand’s economy has performed well overall.”
The bank released a study in August that suggested it normally takes around six months for OCR increases to fully impact mortgage rates.
Further explaining its rate hike, the Reserve Bank said it expected economic activity to recover quickly “as alert level restrictions ease.”
“Recent economic indicators support this picture,” he said.
But the bank said its monetary policy committee was aware that the latest Covid restrictions had severely affected some businesses in Auckland and a range of service industries more broadly.
“There will be longer term implications for economic activity both nationally and internationally from the pandemic,” he said.
What does the official cash rate mean?
The Reserve Bank appeared to leave a lot of leeway over the pace of further rate hikes, saying “a further removal of monetary policy stimulus is expected over time, with future moves contingent on the outlook. inflation and medium-term employment “.
ANZ Director of Personal Banking, Ben Kelleher, said his own mortgage rate hike balanced his commitment to “supporting people in their homeownership aspirations” with rising OCR and financing costs wholesale from the bank.
The rate hikes will take effect from Tuesday for new loans and from October 26 for existing borrowers.
ANZ will also increase interest rates on a number of savings accounts, but only by a lesser amount – 0.05 or 0.1 percentage point.
Asked why savings rates were rising less than mortgage rates, spokeswoman Kristy Martin said she had raised “term deposit rates” by 25 basis points last week.
Kiwibank’s mortgage rate hikes will apply from Monday for new borrowers and two weeks later for existing loans, but the news was better for savers.
It increases savings rates by 0.15 to 0.25 percentage points and interest on term deposits by 5 to 45 percentage points.
Tim Kearins, owner of Century 21 New Zealand real estate agent, predicted that homebuyers would not be put off by the OCR hike.
“It will take a lot more than just an adjustment to the OCR to deter those who are desperate to enter the housing market,” he said.
This was especially the case given that 165,000 migrants were now eligible for expedited resident visas, Kearins said.
“As long as the option of getting a five-year interest rate below 4% or 5% remains, this latest Reserve Bank increase will not deter Kiwis from buying property.”
Kiwibank Chief Economist Jarrod Kerr expects Wednesday’s OCR hike to be the first in a series that would take OCR to 1.5% by mid-October. next year.
“We expect a thoughtful break of around 1.5%. Although the Reserve Bank signals a continuation of 2% in 2023, ”he said, calling the Reserve Bank’s path“ aggressive ”.
ASB chief economist Nick Tuffley said he saw the OCR climb to 1% in February and 1.5% by the end of next year.
The Reserve Bank had made it clear that it intended to continue lifting OCR over time, he said.
Tuffley described the central bank review as “more hawkish than kotuku (white heron),” referring to a speech last month by Reserve Bank Deputy Governor Christian Hawkesby who suggested it might choose your stages carefully.
ANZ sees OCR reach 1.5% by August thanks to a “cautious series of hikes”.
The embarrassing global theme was the risk of weaker than expected growth and higher than expected inflation, ANZ said.
This meant that the Reserve Bank “was heading down a stormy path,” he said.
“As has been the case for some time, the risks are skewed towards something to come to derail the Reserve Bank’s hike cycle before its completion, despite extremely strong inflationary pressures,” he said. declared.
National Party shadow treasurer Andrew Bayly said the increase in OCR amid a lockdown was “incredibly risky for the economy.”
“The Reserve Bank saw the cost of living rising too quickly and its hand was forced,” he said.