PHOTO: The Reserve Bank of New Zealand. FILE
The Reserve Bank is expected to lift the official cash rate (OCR) for the eighth time in a year.
And economists warn the efforts to tackle inflation are far from over with the falling New Zealand dollar tipped to add even more pressure.
Elton Cotton is searching for his first home in Auckland but rising interest rates are forcing him to think twice.
“I’m a little bit concerned to be honest with you, about the outlook for the economy, and for first-home buyers,” he told Newshub.
The Reserve Bank’s tipped to increase the OCR by 50 basis points again on Wednesday. It’ll be the eighth time since October last year as the central bank tries to bring down our 7.3 percent inflation rate – the highest in 30 years – to its target of between 1 and 3 percent.
“After two-and-a-half years of quite a lot of stimulus and a lot of economic activity, we are needing to bring down the temperature of the economy,” said Infometrics senior economist Brad Olsen.
The OCR is sitting at 3 percent but ANZ forecasts it’ll peak at 4.75 percent in the middle of next year, meaning many shorter-term fixed home loan rates will start to push above 6 percent.
CoreLogic chief property economist Kelvin Davidson warned it’ll affect your budget.
“People who were originally taking out a loan at 2.5 percent a year ago could now be looking at 6.5, maybe 7 percent,” he said.
New Zealand’s not alone, US interest rates are at their highest in 14 years. It’s pumped up the US dollar, causing ours to slump to its lowest value since March 2020.
“When the currency falls, you tend to see imported inflation, and that will add to some of those inflation pressures we already have, so therefore as a result of that, the official cash rate could go even higher,” Davidson said.
The upside for home buyers is that property prices are down partly due to increased supply. Since Auckland’s market peaked in November, prices have dropped by about $200,000.
But Cotton isn’t feeling the optimism.
“It’s probably just as difficult before, if not harder, because you’ve got double the mortgage cost for a household, plus the cost of living going up,” he said.
Tough economic times which could see his dreams put on hold.
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