A tough economic year ahead for homeowners but could New Zealand get lucky? - The Front Page

Reserve Bank of NZ Governor Adrian Orr leaving after his press conference after the Monetary Policy Committee agreed to hold the Official Cash Rate (OCR) at 5.50 per cent. Photo / Mark Mitchell.

The Reserve Bank has kept the official cash rate (OCR) at 5.5 per cent and softened its stance slightly but new homeowners are still facing a tough year ahead.

After announcing its decision last week, new forecasts suggest the Reserve Bank might be on track to cut sooner than it had previously indicated.

“Over the past year or so, the New Zealand economy has evolved broadly as anticipated by the committee,” Reserve Bank Governor Adrian Orr said in the Monetary Policy Statement.

“Core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced.”

New Zealand Herald business editor at large Liam Dann told The Front Page he found the state of affairs a little sobering.

“We knew we were in for the long haul but even though the Reserve Bank didn’t hike rates and it had a slightly softer tone about the long term, it was very long term. There was no real indication that there was any relief coming very soon,” Dann said.

“It looks a long way out if you’re a new homeowner with a big mortgage or you’re a business watching cash flow dry up, it’s going to be really tough year in that sense.”

Dann said the flipside to this is New Zealand could get lucky.

“What does lucky look like? If inflation comes out of the world faster than expected, if the US gets on top of it and starts cutting rates, then that would be some fair wins for New Zealand.

“The other part of it is if the economy here really crashes faster and nobody really wants that but inflation would disappear faster and we’d have reason to see rates cut. It’s a difficult balancing act. It’s the old: Do you pull the bandaid off fast or pull it off slow?”

Dann said people are just going to have to buckle down for the next several months.

Despite all this, Dann was still reasonably optimistic, like many bank economists, that we might see some cuts to the OCR before the end of the year.

“That’s just the start of a process but that would be something.”

Listen to the full episode to hear more from Liam Dann about the state of the economy and the half year financial results of some of our biggest companies.

The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5am. This episode was presented by Georgina Campbell, a Wellington-based reporter who has a particular interest in local government, transport, and seismic issues. She joined the Herald in 2019 after working as a broadcast journalist.

You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify, or wherever you get your podcasts.