Reserve Bank of New Zealand lifts official cash rate

Fifth increase brings rate to 2%

Reserve Bank of New Zealand lifts official cash rate

The Reserve Bank of New Zealand has lifted the official cash rate by 0.50 basis points to 2%, with lender interest rates expected to rise in due course.

It marks the fifth OCR increase in the last 10 months.

Explaining its decision, the Monetary Policy Committee of the Reserve Bank said it remained “appropriate to continue to tighten monetary conditions at pace to maintain price stability and support maximum sustainable employment”.

“Consistent with the economic outlook and risks ahead, monetary conditions need to act as a constraint on demand until there is a better match with New Zealand’s productive capacity,” the RBNZ said.

The central bank said underlying strength remained in the New Zealand economy, supported by a strong labour market, sound household balance sheets, continued fiscal support, and a strong terms of trade.

“However, headwinds are strong. Heightened global economic uncertainty and higher inflation are dampening global and domestic consumer confidence … a broad range of indicators highlight that productive capacity constraints and ongoing inflation pressures remain prevalent.

The RBNZ Monetary Policy Committee agreed to “continue to lift the OCR at pace to a level that will confidently bring consumer price inflation to within the target range”.

Read more: OCR to lift by another half point – Reuters poll

The latest interest rate rise is no surprise the finance industry, with experts predicting further OCR rises throughout the year.

David Windler (pictured), director and adviser at The Mortgage Supply Co, said he expected today’s increase in the OCR would flow through to banks and lenders.

“We have seen for some time we are working in a rising rate environment,” Windler said.

“Most banks have priced in some rises, which is interesting as many have lost volume to make profit with what they are doing.”

Windler said advisers could benefit in a difficult credit market where rates were on the rise and people needed to make more thorough decisions about their financial future.

“As advisers, that’s where we come in to provide help, support, expertise and advice to help people make the right decision,” he said.

“The advice industry is gaining momentum and partnerships with banks are an integral part of that, so hopefully the banks are acknowledging adviser driven business which is important to them.”

Windler said in this rising rate environment, advisers might find they need to spend more time with clients looking at consequences of taking on board new lending.

“Fortunately, at the moment, employment rates are low, so job security for borrowers is critically important,” he said.

Read more: Reserve Bank strengthens enforcement framework

“The emphasis for the adviser industry to have quality conversations with clients who will be taking on lending in a high-rate environment for a while is to consider this safely when the cost of borrowing is also on the rise.”

“It’s easy for us to look at a clients requirements when reviewing CCCFA legislation, and we need to introduce that into the conversation we are having without clients so they don’t bite off more than they can chew.”

Windler said for existing clients coming up to refix their loan, it was important to talk through their options with them.

“Historically, the last couple of years people wanting to refix were locking in for one year at an incredibly low rate,” he said.

“The conversations we are having now with rates on the way up is we want to safeguard our clients by locking in longer term rates to provide them the assurance over their loan. As advisers, by providing certainty around their mortgage payment for the foreseeable future, it provides a client peace of mind.”