KEY POINTS:
Attempts by the Reserve Bank to curb household spending and control inflation using the official cash rate could be a waste of time, says a report by ACNielsen.
The survey asked 1000 people in late November what effect a 0.5 per cent hike in the official cash rate (OCR) would have on their current spending, to which 94 per cent replied little or none.
Since January 2004, the OCR has been increased from 5 per cent to 7.25 per cent, and in December Reserve Bank Governor Alan Bollard said a firmer monetary policy stance could be required to maintain downward pressure on inflation.
However, ACNielsen said efforts to use the OCR to control price stability and keep inflation in the low single digits appeared futile in the current financial climate.
Alistair Watts, ACNielsen managing director for Pacific and Japan, said many people didn't know what their interest rate was.
"If you don't know or you don't see a relationship between that and the OCR, then it's highly unlikely you're going to feel that you're going to be affected."
People appeared to view OCR rises of a quarter or half a per cent as inconsequential, whether or not that proved to be the case, he said.
Only 8 per cent of people correctly identified the OCR, while 61 per cent admitted they did not know and 31 per cent thought they knew but were wrong.
Mortgage holders made up 43 per cent of those surveyed. About two-thirds of them were on a fixed-rate mortgage.
"I sort of get the feeling that they feel ... fireproof," Watts said.
ACNielsen said it was understandable that 91 per cent of people with fixed mortgages, who might not be affected in the short term by OCR fluctuations, felt there would be little or no change in their spending.
However, 95 per cent of those with floating mortgages also felt changes in the OCR would have little or no effect on their spending.
Further to this, only 16 per cent of mortgage holders said they were likely to make changes to their mortgage in reaction to a rate change.
Rate manipulation could work, but the present economic climate of low unemployment and faith in rising house prices appeared to be counteracting concerns some people might otherwise have about rising interest payments on debt, Watts said.
National Bank chief economist Cameron Bagrie said the survey did not necessarily show that the OCR was an inefficient instrument.
"Maybe it's just telling us that we haven't hit that inflection point where things really hurt - and remember that Dr Bollard said six to 12 months ago he was prepared to put up interest rates until they really hurt."
There was another side to an OCR change that the survey didn't cover, Bagrie said.
The household sector tended to feel insulated provided people had jobs, but as costs rose in the business sector companies could cut staff, affecting households.
However, historically the New Zealand economy could turn on a dime, he added.
"You only need to look back to late 2005. The Reserve Bank hiked 50 basis points, and all of a sudden we had some really awful economic data and people were starting to talk about a recession.
"So it can have an impact pretty quickly."
Bagrie said other issues affecting the actions taken by the Reserve Bank included migration, US interest rates and the tax advantage of investing in housing.
Official cash rate
What effect would a rise of 0.5 per cent have on spending?
*94 per cent of survey total said little or no effect.
* 91 per cent on fixed mortgages said little or no effect.
* 95 per cent on floating mortgages said little or no effect.
* 8 per cent correctly identified the current rate.
