Late last month, the CEO of one of New Zealand’s major mortgage brokers, David Cunningham, sent an open letter to Reserve Bank Governor Adrian Orr pleading with him to keep interest rates on hold.
“Households are in for a world of pain”, Cunningham warned.
“Even if the OCR is held at current levels, the average mortgage rate Kiwi are paying is going to rise to 5.90% over the next year, as more people roll off lower fixed mortgage rates to higher levels”.
“That’s another 1.50% to find on top of where we are now, and with repayment buffers much narrower”.
“Monetary policy is on a steep tightening cycle for another year. Kiwi don’t need the screws tightened further via more interest rates hikes. They need someone to cut them a break”.
“Governor Orr: Don’t kill the economy, and inflict even more pain on top of what’s already coming for Kiwi households, just to slay the dragon that little bit faster”, Cunningham concluded.
Cunningham’s plea obviously fell on deaf ears, with the Reserve Bank hiking the official cash rate another 0.25% to 5.50% – the highest rate since December 2008.
It also meant that New Zealand’s official interest rates have risen the most in the developed world:
New Roy Morgan research suggests that Kiwis are scared stiff about interest rates:
“Unsurprisingly, the rapid set of interest rate increases since late 2021 is hitting New Zealanders with a mortgage harder than anyone else”, Roy Morgan notes.
“Nearly two-thirds of New Zealanders who are paying off their home, 63.3%, say they are ‘worried about interest rates at the moment’ – up from a low of only 21.6% in March 2021”.
“This is an increase of over 40% points in a year-and-a-half – and the Reserve Bank has raised interest rates even further since the end of last year”.
Interestingly, just over half (50.6%) of renting households are concerned about interest rates, up from around one-third in mid-2021.
Nearly half (49.2%) of households that fully own their homes are also worried about interest rates, up around five basis points since mid-2021.
Presumably, the latter groups are worried that the Reserve Bank’s aggressive rate hikes will drive the economy into recession, rather than the direct impact on their hip pockets.
Regardless, the Reserve Bank has Kiwi households running scared over interest rates, which should crater household consumption and bring inflation down quicker; albeit at the cost of a recession.
