RBNZ's tightening will worsen the cost-of-living crisis faced by indebted households, Kiwibank economists say
Mortgage rates will lift to between 6% and 7.5% over the coming year, which will worsen the cost-of-living crisis, Kiwibank’s economists have predicted.
The Reserve Bank of New Zealand has hiked the cash rate by 50 basis points to 2%, and in its Monetary Policy Statement, pointed to much higher rates ahead, with the OCR tipped to rise to at least 3.25% this year. This came as the central bank committed “to ensure consumer price inflation returns to within the 1% to 3% target range.”
Mortgage rates currently range from 4.4% to 6.9%, with more than 60% of the debt either floating or expected to roll off a fixed term this year.
Kiwibank economists said RBNZ’s tightening was already being felt now and that it “will only worsen the cost-of-living crisis faced by indebted households,” NZ Herald reported.
They expect the cash rate to reach 3% by November but believe it will stop around there because of its impact on households.
“The impact of every move to date, and from here, is causing a material impact on the housing market and household consumption,” the Kiwibank economists said. “Cooling the housing market and taming consumption is the desired impact of rate hikes.”
Kiwibank expects house prices to fall by around 10% by the end of the year and predicts a decline in consumer spending.
“Consumption growth will wane as households face the negative wealth effect of falling house prices and a continued cost-of-living crisis,” the economists said.
The Kiwibank economists cited recession risk as the main reason they expect the central bank to stop at 3%, NZ Herald reported.