After consumer prices jumped 4.9% in the year through September, a survey of corporate inflation expectations published by the Reserve Bank on November 18 shows that expectations have “risen sharply”.
Annual consumer price inflation is expected to hit 3.7% in one year and 2.96% in two years, above Reserve Bank’s median target of 2%, survey results show .
As a result of the results, wholesale interest rates increased, pushing retail mortgage rates and savings rates up sharply.
“We have seen wholesale interest rates rise very sharply and this is spilling over to all term loan rates,” said Nick Tuffley, chief economist for the ASB.
While the ASB forecast shows a 25 basis point increase in OCR to 0.75% on Wednesday, markets have effectively valued an almost 50/50 probability of a 50 basis point increase, Tuffley said.
“If we see a 50 [basis point rise]wholesale rates are likely to increase a bit more, ”Tuffley said.
One of the important indicators for Wednesday will be whether the Reserve Bank lifts its OCR forecast. Based solely on the objectives that the Reserve Bank must achieve in the medium term, everything points to the need to continue lifting OCR. But the COVID-19 Delta outbreak still creates uncertainties and risks, especially as restrictions relax over the summer.
“If this is only a 25 basis point increase and there are key signs that it will continue to rise rapidly, there could be a slight drop in interest rates, but this should keep interest rates high enough, ”Tuffley added.
Given the amount of debt incurred by mortgage borrowers and the upward sensitivity of interest rates in the housing market, ANZ economist Finn Robinson expects rate hikes of interest are more effective than in the past.
The bank expects OCR to reach around 2% by December 2022, rising 25 basis points on Wednesday.
“We’ve already seen some of the biggest mortgage rate hikes in decades over the past two weeks… it’s really going to bite people’s wallets and slow the economy down to a more sustainable pace,” Robinson said.
After setting the bulk of his mortgage at 2.25% for one year in March 2021, a homeowner told Newshub he is now fighting to lock in the cheapest rate without considering whether interest rates would increase.
At the time, he had the option of fixing at 2.99% for five years, he said. On Monday, the one-year fixed rate offered by his bank is already two percentage points higher, at 4.25%. The five-year fixed rate is 5.85%.
“We got caught … the cheapest rate isn’t always the best,” he said.
Using the rule of thumb that on a $ 500,000 mortgage, each 1 percentage point increase costs about $ 5,000 per year ($ 100 per week), he expects his repayments to increase by at least $ 192 per week when her mortgage is renewed next year.
After the start of COVID-19, the Reserve Bank lowered the official rate to a record low of 0.25% in March 2020. After 19 months, in October 2021, the Reserve Bank began to remove the cash rate emergency, increasing OCR. 25 basis points at 0.50%.
The official exchange rate will be revised on Wednesday, as part of a monetary policy statement from the Reserve Bank.