Mortgage Rates

ANZ raises mortgage charges after Reserve Financial institution hikes official money price to 0.5%


The Reserve Bank has withdrawn some of its monetary stimulus despite the worsening Delta outbreak.

Robert Kitchin / stuff

The Reserve Bank has withdrawn some of its monetary stimulus despite the worsening Delta outbreak.

The Reserve Bank raised the official cash rate by 25 basis points to 0.5 percent, ending an 18-month period at a record low of 0.25 percent.

The ANZ, the country’s largest bank, announced within minutes that it was raising the interest rates on its variable and flexible home loans by 0.15 percentage points.

The rise in the official cash rate is the first since 2014, when the OCR hit a post-GFC high of 3.5 percent.

The rate hike was widely expected by banking economists, who believe it will be the first of a few as the central bank tries to keep inflation under control.

* The official cash rate is expected to increase by 25 basis points on Wednesday
* Who pays the price for the $ 54 billion spent on quantitative easing?
* The expected rate hike in October may not flow fully into mortgages until April
* Adrian Orr: Decision to “literally limit the official cash rate to the uncertainty of the day”

The Reserve Bank said the current restrictions on Covid “did not materially change the medium-term outlook for inflation and employment” as they delayed an expected rate hike in August, suggesting inflation would temporarily rise above 4 percent.

“Capacity pressures remain evident in the economy, particularly in the labor market,” said the central bank.

“A wide range of economic indicators shows that the New Zealand economy is doing well overall.”

The bank released a study in August suggesting that it typically takes around six months for the OCR increases to be fully reflected in mortgage rates.

Further explaining its rate hike, the Reserve Bank said it expected economic activity to recover quickly “when the alert restrictions abate”.

“The latest economic indicators support this picture,” it said.

However, the bank said its Monetary Policy Committee was aware that recent Covid restrictions had severely affected some Auckland businesses and a number of service industries in general.

“The pandemic will have longer-term effects on economic activity at home and abroad,” it said.


What does the official cash rate mean?

The Reserve Bank appeared to leave a lot of leeway on the pace of further rate hikes, saying that “further dismantling of monetary stimulus is expected over time, with future steps dependent on the medium-term outlook for inflation and employment.”

Ben Kelleher, director of personal banking at ANZ, said the rise in mortgage rates offset his commitment to “helping people in their home pursuit” with the bank’s rise in OCR and wholesale financing costs.

ANZ said it will also raise interest rates on a number of savings accounts. The bank has been contacted for further details.

Kiwibank chief economist Jarrod Kerr expected Wednesday’s OCR surge to be the first in a series that would bring OCR to 1.5 percent by the middle of next year.

“We expect a deliberate break of 1.5 percent. Although the Reserve Bank is signaling a continuation to 2 percent in 2023, ”he said, describing the Reserve Bank’s course as“ aggressive ”.

ANZ announced 20 minutes after the OCR increase that their variable and

David Hallett / stuff

ANZ announced 20 minutes after the OCR increase that their variable and “flexi” mortgage rates would rise 0.15 percentage points – they said savings rates would rise too, but did not immediately reveal how much.

ASB chief economist Nick Tuffley said the OCR rose to 1 percent in February and 1.5 percent by the end of next year.

The Reserve Bank has made it clear that it will continue to raise OCR over time, he said.

Describing the central bank’s review as “more hawk than kotuku (white heron),” Tuffley referred to a speech by Reserve Bank Deputy Governor Christian Hawkesby last month that suggested that their moves should be carefully selected.

ANZ expects OCR to reach 1.5 percent by August through a “cautious series of increases”.

The uncomfortable global issue is the risk of lower than expected growth and higher than expected inflation, said ANZ.

That meant the Reserve Bank “took off in a stormy way,” it said.

“As has been the case for some time, the risks are skewed that the Reserve Bank’s rate hike cycle could derail before its close despite extremely strong inflationary pressures,” it said.

National Party’s shadow treasurer Andrew Bayly said increasing the OCR in the middle of a lockdown was “incredibly risky for the economy.”

“The Reserve Bank saw the cost of living rise too quickly and their hand was forced,” he said.