Reserve Bank lifts official cash rate

Katie Bradford
Source: 1News

Expect interest rates to keep rising, with the Reserve Bank on Wednesday lifting the official cash rate again.

New Zealand bank notes (file picture).

The Monetary Policy Committee has increased it 0.25 per cent to 0.75 per cent.

Banks have gradually been lifting rates for the past few months.

Governor Adrian Orr says the global economy is bouncing back, but Covid-19 continues to cause havoc around the world.

New Zealand’s economy is seen to be performing at a high level, with the labour market tight and unemployment low.

The committee says the recent lockdown and restrictions resulted in a sharp contraction in economic activity, but it has bounced back since then, with strong export returns and consumer spending.

The housing market continues to climb, with the Reserve Bank saying house prices are “unsustainable”. But higher mortgage rates, strong home building, tighter lending rules and changes to tax settings may ease some of that pressure in the medium term. But if house prices keep rising, the committee warns, there’s a risk of a sharper fall later down the track. Increasing the OCR may stabilise that.

Orr predicts inflation could rise above five per cent in the near term, before slowly dropping.

Increasing interest rates may dampen spending, easing some of the inflationary pressures.

ASB have already made changes to its interest rates in light of the OCR increase.

Deposit rates on savings plus and headstart savings accounts will increase by 0.25 per cent, taking the maximum interest rate on these accounts to 0.65 per cent.

The bank will also adjust its home lending rates.

The Orbit and Housing Variable rates will increase 0.15 per cent from 4.55 per cent and 4.45 per cent to 4.7 per cent and 4.6 per cent respectively.

The Back My Build home loan rate will increase by 0.25 per cent from 2.04 per cent to 2.29 per cent.

New variable rates are effective for all new housing loans from December 1 and will be applied to existing loans from December 8.