The Reserve Bank’s decision to hike the OCR by 50 basis points has surprised economists, with National saying it'll be "another punch in the guts" for mortgage holders.
Today's increase takes the OCR to its highest level since December 2008 and is the 11th successive rate hike for the central bank.
While an increase was expected, most economists had tipped a 25 basis point rise. Instead, the Reserve Bank continued a fierce drive to tame inflation with a 50 basis point rise, bringing the OCR to 5.25%.
For months, the Reserve Bank has wanted to cool down the economy and tame inflation by making it more expensive to borrow and spend money — especially for mortgages.
It's all people are talking about, but what is the OCR and how does it impact the lives of New Zealanders? (Source: 1News)
CoreLogic chief property economist Kelvin Davidson said that the Reserve Bank's decision was influenced by increasing economic activity after Cyclone Gabrielle.
"It reflects RBNZ's continued concerns about inflation. Weighing on this is the effect Cyclone Gabrielle may have on pushing up consumer prices and economic activity via the rebuild," he said in a media release.
He said the flow-through from the OCR change to mortgage rates "is likely to be pretty limited, as tighter monetary policy has already been ‘priced in’ by the banks."
"It still seems likely that mortgage rates are at or close to a peak, which is probably the first hurdle now cleared in terms of the housing market downturn getting closer to ending.
"That said, it’s still too early to sound the all-clear and suddenly expect sales volumes to pick up and house prices to find a floor.
"After all, new borrowers are still facing tough serviceability testing, and a continued wave of existing mortgages are yet to be repriced to current rates of around 6.5%."
The economist said there was still "high uncertainty" about the outlook towards the end of the year.
Meanwhile, National's finance spokesperson Nicola Willis blamed the rate hike on the Government's spending and said mortgage holders would face "another punch in the guts".
"New Zealand’s inflation rate is higher than Australia's, the USA’s and many other countries we like to compare ourselves with," she said in a media release.
Willis continued: "Around half of New Zealand mortgage holders will be re-fixing their mortgages in the next six months, meaning many will see their interest rates double from 3% or less to more than 6%.
She said Labour's "spending, restrictive immigration settings, and the huge volume of money-printing and borrowing it oversaw during the Covid lockdowns has directly worsened the cost of living crisis".
"Mortgage holders up and down the country were holding their breath and hoping for some relief. Instead, they’ve been given another punch in the guts."
In other political reaction, Green Party revenue spokesperson Chlöe Swarbrick said the Government could've taxed the wealthy more to deflate the economy.
"The Government’s refusal to use deflationary measures, such as excess profits taxes on banks' historical profits, or wealth taxes on those who profited handsomely through the global pandemic, are choices.
"Their unwillingness to use those tools and leave it to RBNZ’s blunt instruments will cause unnecessary and disproportionate pain for lower-income New Zealand households."
She reiterated that an engineered recession would hit lower-income Kiwis hardest.
"Lower-income New Zealanders not only bore the disproportionate cost of getting through the pandemic but are now carrying the bill of supposed recovery. If we taxed wealth, this money could then be used to support people to help make ends meet."
Alternatively, ACT leader David Seymour used the rate hike to attack the Government's spending and suggested that "business is much better across the Tasman."
"Australia’s reserve bank this week decided to halt increases to their own OCR, which sits at 3.6. In contrast, New Zealand’s has been increased to 5.25.
“Australia seems to be getting things under control, they’ve stopped hiking and the average floating interest rate there is 6.09 per cent. In New Zealand, floating interest rates are about 8 per cent and show no signs of decreasing soon.
Past the pain for mortgage holders, Seymour warned that job losses were coming up, suggesting that "something has to break" with the Reserve Bank's hikes.
"There are already job losses occurring at an increasing rate, in the last week, Today FM, Sky, Xero have all shed hundreds of employees, and the Reserve Bank is predicting another 66,000 job losses across the next two years."
“The onus is on Grant Robertson to pull back on the Government’s spending or Kiwis will continue to bear the brunt of price rises, he needs to offer the Reserve Bank a lifeline. The Governor has often said ‘monetary policy needs friends.’"
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