The Official Cash Rate has this morning been left on hold by the Reserve Bank at 3 per cent.
Such a hold was widely expected, with market economists all but unanimous that Reserve Bank Governor Bollard will not raise the official cash rate again until March next year.
The average expectation among 11 forecasters polled by Reuters is that he will have raised it 100 basis points, to 4 per cent, by this time next year.
In an announcement just released, Reserve Bank Governor Alan Bollard says that “Despite some data turning out weaker than projected, the medium-term outlook for the New Zealand economy remains broadly in line with that assumed at the time of the September Monetary Policy Statement.”
“Downside risks to the outlook for global growth continue, with high public and private debt inhibiting recovery in many developed economies. Moreover, it is unclear how further policy support would impact on the outlook for growth in our Western trading partners. Offsetting this weakness, strong growth continues in China, Australia and emerging Asia.”
“Domestically, recent data has turned out weaker than projected. Continued household caution has seen consumer spending and housing market activity remain muted, and many firms have become less optimistic about their future prospects. However, continued high export prices, along with reconstruction and repairs in Canterbury, will support activity over the coming year.
“Overall, continued GDP growth is expected to gradually absorb current surplus capacity over the next few years. Headline inflation is expected to move higher following the recent increase in the rate of GST. The subdued state of domestic demand suggests this inflation spike will have limited impact on medium-term inflation expectations.
“While it is appropriate to keep the OCR on hold today, it remains likely that further removal of monetary policy support will be required at some stage.”
There is clear signals here.
The first being the recovery of our economy in New Zealand is taking far longer than expected initially.
The second is that this economic stimulus with low interest rates will not last forever.
If you look at the history of the OCR in New Zealand since it was introduced in March 1999 you can clearly see that the current rates are the lowest it has ever been.
This is a good thing for mortgage holders. The only catch is the rise in the interest rates that are inevetably going to happen soon. If you have recently got a mortgage like myself the rate at this time is great. The mortgage is costing roughly the same as it would for rent. However when the rate increases, and the fixed term rates come off their time I will find that I will be paying more. I have calculated if my rate increases 2% next time round it will cost me $48 more per week for the mortgage. And I dont have a large mortgage. Imagine people with twice that. OUCH!
It might be a good time to start thinking about your mortgage payment. Do you have a little spare cash that can go into the mortgage now. If so it will both lesses your interest burdon but will also help you adjust when you have to pay that little bit more. (this is a different subject.)