How high will interest rates go?

Is it time to hit the panic button?

With the recent increase in fixed mortgage interest rates last week, I have had a number of clients contacting me concerned about the future direction of interest rates.

After the recent 3.30% per cent inflation number which surprised many, the Reserve Bank has now suspended its Large-Scale Asset Purchase programme, (that’s money printing to you and I), this will open the door to potential increases in the Official Cash Rate (OCR) which could be as soon as next month.

The Reserve Bank is required to keep inflation to an average of 2% and also to maximise sustainable employment. In their latest monetary policy review it said the NZ economy has been performing strongly, but still faced uncertainties.

In the economies of our major export markets there are still ongoing issues with Covid and the rise of the Delta variant, that will slow their economic recovery and therefore the pace of any future interest rate increases.

Whilst it is certainly true that the era of ultra-cheap money looks to be coming to an end after years of falling interest rates. Due to the unpredictability of the pandemic, we do face a level of uncertainty regarding the pace of growth in our economy, the speed with which inflation lifts, and therefore the likely track of interest rates.

My general advice to my clients would be to budget for average interest rates to increase by somewhere around 1.5% over the medium term but the extent and timing of rate rises is by no means certain.

Rest assured we are certainty not going back to the days where interest rates average over 6.0% seen a decade ago any time soon, if ever!

A month or two before your refix is due, please contact me so we can discuss options and develop a course of action that best suits your individual circumstances and budget.