OCR Decision: No Change For Now
The Reserve Bank hit pause today. Don't get too comfortable though.
Almost everyone expected them to lift the OCR this afternoon. The economists were calling it, the money markets had it priced in, and then... they didn't. The OCR decision: stay at 2.75%.
But the statement that came with it was basically a polite warning. Their words: tighter monetary policy "is likely to be required." In plain English, we're not raising today, but don't assume we're done.
The quick version:
OCR unchanged at 2.75%
It was a close call. The committee voted 4 to 3, so three of the seven wanted to hike today
The message is pretty clear: the next move is more likely up than down
Whether that actually happens depends on how the economy and inflation behave between now and then
OCR decision: So why didn't they raise it?
Inflation came in lower than they were expecting. It's down to 3.7% from 4.1% three months ago. Wage growth has been fairly flat, and the Reserve Bank says households aren't spending much, which makes it harder for businesses to push prices up. That bought everyone a bit of time but whether that was the right call remains to be seen.
And why the warning?
The big one is fuel. Global energy markets have pushed petrol and diesel prices up, and the Reserve Bank reckons that alone could push inflation back up to around 4.4% by the end of the year.
But it's not just petrol:
The Kiwi dollar has dropped about 3% since early September, which makes imported goods more expensive
Price rises are spreading. Even with the volatile stuff like fuel stripped out, inflation is sitting near the wrong end of the Reserve Bank's inflation target range.
They want inflation back at 2%, and right now it's heading the wrong way
What this means for your mortgage
If you're on a floating rate, floating rates tend to follow the OCR. No change today means there's no obvious reason for them to move right now.
If you're fixed or coming up to a refix, fixed rates are driven more by where the market thinks the OCR is heading than where it sits today. The Reserve Bank's message points up, so a hold today doesn't automatically mean cheaper fixed rates tomorrow. If your refix is in the next few months, get in touch early so we've got time to look at your options properly.
Why your neighbour's structure might be wrong for you
When rates are in the news, the question we hear more than any other is "what term should I fix for?" The honest answer is it depends on you, not on the headlines.
Two people with the same loan size can need completely different setups. A few things that change the answer:
How long you plan to stay in the property. If you might sell or move in the next couple of years, a long fixed term could cost you if you need to break it.
Whether you expect a lump sum. A bonus, an inheritance, or the sale of another asset is easier to put against your loan if part of it is flexible.
How much certainty you need. Some people sleep better knowing exactly what comes out each fortnight. Others are happy to take some variability in return for flexibility.
How steady your income is. This matters especially if you're self-employed or your income moves around through the year.
How fast you want to pay it down. Some structures make extra repayments easy, and some make them expensive.
That's why a lot of our clients don't have their whole loan on one rate or one term. Splitting it across different terms, or keeping part of it flexible, lets you lock in certainty on some of the loan while keeping options open on the rest. The right mix is different for everyone, and it can change as your life does.
If you haven't had your structure looked at in a while, now's a good time to reach out to your adviser!
Thought about buying, but parked it?
Plenty of people looked at buying in the last year or two, ran the numbers, and decided to wait. If that's you, it might be worth having another look.
Your situation may have moved on since then. Your income, your savings, or your KiwiSaver balance may have grown, and bank policies change over time too. The Reserve Bank also noted some early signs of a pick-up in residential building and investment, including here in Auckland.
We're happy to sit down and run your numbers again. That is what you could borrow, what the repayments might look like, and what a sensible structure would be for you. If the answer is still "not yet", you'll at least know what you're working towards.
What's next?
The next announcement is on 9 December, and an increase is still very much on the cards.
Nobody knows exactly where rates go from here. Judging by today's 4 to 3 vote, that includes the Reserve Bank. What we can do is look at your loan, your timing, and your plans, and work out a structure that holds up whichever way things go.
Whether you're refixing, reviewing, or thinking about buying, chtting to an adviser is always a good idea. Reach out to us and we will be happy to answer any of your questions.
