Reserve Bank Dec 2015 and what you should know

The OCR came down yesterday to a record low and most homeowners and buyers looking to see what effect this will have on short term rates which are already at a 50 year low too. The Reserve Bank is also sending out caution signs so here’s my take on their stance.

1. The RB is more concerned about the possible price reductions in Auckland than deflation. It sees inflation at around 2% next year whilst most Bank economists feel this won’t happen without more rate cuts.
2. The RB knows it can’t please everyone, a bit like the current Flag issue! For borrowers lower rates are the way to go but for savers, rates need to rise. For exporters lower rates mean easier selling overseas whilst importers like higher rates as it makes imports cheaper. Good luck in trying to walk through that!
3. The dollar is still too high and despite the current OCR drops the dollar continues to rally leaving the RB rather frustrated.
4. Currency markets are mad. Yesterday’s cut should have brought the dollar down, it rose by a full cent against the US. Seems that the markets are more interested in forecasts which look good and so minimise the need for further OCR cuts. However the RB doesn’t put words in documents for nothing and so they may still reduce the OCR if they feel the need to do so. Confused? You should be, bottom line is that no-one really knows what will happen next year other than rates will remain low, whichever way they go.
5. There are four big risks to New Zealand’s economy
   • China slowing and a weaker Global economy
   • Dairy prices staying low
   • El Nino summer causing drought and cutting GDP growth
   • Immigration staying high causing increased pressure on housing stock fuelling more borrowing for consumer goods

So for Mortgage borrowers what’s in store? Lower rates for certain but many feel that fixed rates have little or no room to drop further. The main message here is mortgage structure. Decide how much you can afford each month and over pay, make low rates work for you and not the Bank! As always we are here to assist so look forward to any questions you may have. Email is [email protected] or 0800 LENDER (536337)

Have a great Christmas and prosperous 2016!