The New Zealand economy has been on a downward spiral along with global economies since 2007. Butmany believe that we in New Zealand have reached a turning point. In terms of New Zealands Official Cash Rate I believe we have hit the bottom of the line. It started in June last year when the Official Cash Rate stood at a record high of 8.25 per cent. Floating mortgage rates were nearly 11 per cent and savers were getting more than 8 per cent for the money in their term deposits.
In 2007 the world hit a point when the credit crunch hit and people were just struggling to pay the high costs and banks and finance companies started folding. This sparked the Reserve Bank on the fastest and biggest series of cuts in the OCR in history. The degree of OCR cut has been one of the largest drops in the World. The OCR here has been reduced 6.25% from 8.75% to 2.5% in just over 18 months.
This for the housing market helped the banks bring their interest rates down to record lows as well. But this is going to change Interest rates will be going up over the next few months (irrespective of what the RBNZ does with the OCR) as simple supply shortages and excess demand from governments increase the price of money. Two to five year rates will be the biggest rises, but I’d expect short term and variable rates to see some upside movement too.
Any of us who are struggling to meet debt repayments, or who consider they might be, or indeed who feels their employment might be at risk should quickly start liquidating assets and clearing debt NOW ahead of the rush.
So as far as OCR rates are concerned this is the end of the line. There will not likely to be any further cuts to the OCR but there will probably not be any increase in the OCR until well into 2010 when the economy starts a slow recovery.