Cash rate rise will affect just about everyone

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The era of ultra-cheap money looks to be coming to an end after yesterday’s Reserve Bank monetary statement.

The Reserve Bank is expected to start raising its key interest rate as soon as next month Photo: 123RF

It held the cash rate at 0-point-25 percent but halted the bond buying programme, which has cleared the way for a rise starting next month and another in November.

Kiwibank chief economist Jarrod Kerr said just about everyone will be affected to some degree.

According to Kerr, there could be at least three interest rate rises from the central bank within a year.

The Reserve Bank held the official cash rate at a record low zero-point-2-5 percent yesterday, but halted its bond buying programme.

It is expected to start raising its key interest rate as soon as next month.

“What they’ve said is that they want to remove some of the policy stimulus out there and that’s their way of saying we’re going to stop buying bonds, we’re going to stop the quantative easing program and we’re going to let wholesale interest rates lift,” he said.

He said the forecast interest rate rises could mean current mortgage rates between two and four percent, could rise to three or five percent.

“We’re not talking massive increases like we’ve seen previously but we are talking a good one percent from here which will affect most people with debt but it’ll also provide some relief to those that are savers.

“We talk a lot about borrowers but the people who were suffering the most in the last year were savers particularly people who were having to live off their savings so we will see term deposit rates continue to lift so that will provide some support to another part of the economy,” he said.

Wholesale interest rates have lifted over the last month and Kerr said this has passed on to mortgage rates, other lending rates and term deposit rates.

It’s been seven years since New Zealand saw a cash rate rise and Kerr expected many first homebuyers to renegotiate their mortgage rates if interest rates do rise.

“2014 was the last time we saw a rate rise so there are a lot of first home buyers out there who have never seen a rate rise.”

“A lot of people are on fixed [term] but a lot of people are also rolling off their fixed rates in the next six months so we will see a lot of people coming down to the bank wanting to refix their mortgage rates.

“Now that interest rates are rising they will most likely want to refix their rate for a longer term,” Kerr said.

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