Full impact of OCR hikes yet to be felt: economist

WELLINGTON: Homeowners feeling the pinch are being warned they are only halfway through the ripple effect on mortgage rates, with the official cash rate (OCR) now at its peak.

But one economist says with falling interest rates will likely come growing unemployment and slower wage increases.

The Reserve Bank yesterday raised its benchmark rate by 25 basis points — taking it to 5.5% — and said that was probably enough.

It also signalled cuts would not come until the third quarter of next year.

ASB chief economist Nick Tuffley said he was expecting the Reserve Bank to start cutting the OCR in the first half of next year, despite RBNZ governor Adrian Orr saying it was unlikely before the end of 2024, or even into 2025.

‘‘Yes, it does look like it will take that long to get inflation back down into the target band, but the Reserve Bank doesn’t have to wait until inflation is down — as long as there’s still probably enough pressure coming through.’’

Mr Tuffley said it appeared Mr Orr took into account the fact many mortgage holders refix to higher interest rates, so the full impact of the OCR hikes over the past year or so was yet to be felt.

In the past, he said booming immigration had pushed up inflation, but that was not happening at present, with plenty of jobs to go around.

‘‘On the flipside, wage growth wasn’t as strong as expected.

‘‘So potentially what we’re going to see going forward is . . . a lot more people available to work — not all of them will necessarily get work, and we’ll see wage pressure start to ease back.’’

This would ease cost pressures on business, Mr

Tuffley said.

It has been a record busy month for those at MoneyTalks, a free national budgeting advice service.

Team lead Angela Smart said it had already answered 2000 calls, a 30% jump on last month.

She said more people were calling in financial distress.

‘‘They just say they don’t know where to go next.

‘‘That’s when we look at finding the right financial mentor, the right budgeting service that is going to work with them to step in between and have those negotiations with creditors.’’

Squirrel Mortgage Brokers chief executive David Cunningham said interest rates would remain high for some time.

‘‘The monetary tightening policy cycle is firmly in play and it’s only halfway through for households.’’

He said households with a little money under the mattress would do better than those who might be expecting a reprieve from high mortgage interest rates.

Last month, people in financial hardship drew down $20 million of their KiwiSaver, double that in January.

Auckland Central Budgeting manager Tim Maurice said people were using the funds to claw out of debt.

‘‘We’re seeing more people using it to cover budget deficits, which is going to make retirement much tougher, but people don’t have a choice.’’

Ms Smart said one in 10 people who called for help with their finances did so before they were in financial distress.

‘‘For those that had thought that they were able to hold out on those higher floating rates or interest rates until the end of this year, well it’s now looking another six months on from there.

‘‘Our message is be proactive. Reach out for help before it gets any tougher.’’ — RNZ