HAS THE OCR FALLEN TOO FAR?
New Zealand’ s inflation rate – which peaked at 7.30 per cent in mid-2022 – has only just eased into the upper end of the RBNZ’ s one-to-three-per-cent target band, despite a period of subdued economic activity.
GDP shrank 1.10 per cent in the year to June, and employment fell 0.60 per cent in the September quarter.
“ The question is whether the RBNZ continues its past practice and leaves the OCR at overly low levels for too long,” he notes. With a new Governor in place, he says,“ the risk is the central bank tightens earlier than previous occupants of the position would have opted for.”
Before any shift in the OCR, Alexander expects financial markets to react first, meaning that lenders could lift fixed mortgage rates in the coming weeks.
FIXED RATES ALREADY SHOWING UPWARD PRESSURE
Interest rate markets are already hinting at the turning point.
• The one-year swap rate fell to 2.35 per cent in mid- October, down from 2.80 per cent six weeks earlier – but it has since climbed to around 2.52 per cent.
• The three-year swap rate bottomed at 2.60 per cent, down from three per cent and is now around 3.04 per cent.
As Alexander points out, all swap rates now sit higher than they were before the RBNZ’ s 0.50 per cent OCR cut in October, indicating that markets are already repricing.
“ Pressure is developing for an increase in fixed rates longer than one year,” he says.“ The clock is ticking for this cycle’ s fixed mortgage rate lows.”
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