OCR rise 'no panacea' to mounting household costs - economist

Source: 1News

The rise of the official cash rate to 1.5% is “cod liver oil” for Kiwis as they grapple with a cost of living crisis, according to one economist.

The Reserve Bank on Wednesday raised the OCR by .05 basis points in a bid to curb rapidly rising inflation, which saw its biggest spike in more than 30 years in January.

ANZ Chief Economist Sharon Zollner says the move is “no panacea” to the mounting household costs people are facing.

“We’re adding more costs into the household budgets of those who have debt, those who have mortgages,” she told Breakfast.

However, she says many people appear to be in favour of taking the medicine because they hate inflation more.

“The interest rates affect an awful lot of people – inflation affects everybody.

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“We’re talking here about who gets what, how much you can afford to buy each week. These are big issues for people.”

The raising of the OCR has already seen some mortgage rates go up, making them more expensive for Kiwis. However, on the flip side of this, a range of term-deposit rates have risen as well, which is good news for people saving money.

Zollner says retailers could be hit hard if after stocking up on goods following unexpected demand during the Covid pandemic Kiwis then close their wallets.

And it’s likely the OCR will be raised again soon, possibly in May, when the Reserve Bank issues its next monetary policy statement.

“Essentially, they [the Reserve Bank] think the neutral OCR, the rate at which they’re neither on the accelerator or the brake, is probably around 2%.

“So, their strategy seems to be get to there quickly and then maybe see how things are looking and perhaps take it a little easier from there”

Zollner says inflation is a global issue that isn’t just affecting New Zealand and that while the country may be in for a bumpy ride, she’s hopeful of a “soft landing”.

“Today we can still reasonably hope that with a gentle slow down, that doesn’t include a massive increase in unemployment, we can get on top of this.”