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Lockdown Halts OCR Increase

It was widely expected that the OCR would increase at the recent review and then lockdown hit, writes Ryan Smuts.

By: Ryan Smuts

1 September 2021

Well, we’re now back in lockdown (level four at the time of writing) and I don’t think any of us expected to be back here in a hurry. We definitely took our freedoms for granted.

The big news recently in the interest rate market has been the fact that the official cash rate (OCR) has remained at 0.25% per its review on August 18, 2021. Typically OCR reviews are scheduled every six weeks but this time round it was just over a month since the last one on July 14.

There was somewhat of a unanimous expectation by market commentators that we were expecting an increase – some even suggesting it could be as high as a 0.50% hike to the cash rate, due to results of inflation statistics released in July with inflation at a 10 year high.

As a result – mid July many banks priced this into their rates and the cost of funds went upwards at a rapid rate, in most cases banks went up by 0.30%-0.36% higher per annum, depending on the fixed rates, and in some cases higher.

However, now that we are in lockdown and due to the fact there are concerns around the spread of the delta variant in NZ – forecasts may change in terms of the timing (of OCR increases). So far banks haven’t dropped rates back down (some have still gone up slightly on some fixed terms) but with the current environment it is possible we may see some downward pressure on rates as the economy takes a hit.

HSBC are currently sitting as the sharpest rate offered among lenders for the one year and 18-month rates –typically terms they tend to favour. Most major AU/NZ banks have their fixed interest rates priced between 2.39%- 3.69% depending on the bank and the fixed rate from one to five years.

It’s quite interesting too however to see some non-bank lenders such as Resimac and some of their competitors, have cheaper five-year rates than most of the banks presently (eg Resimac at 3.54%).

Historically these are still very good rates – and it’s another reason why we are strongly recommending that borrowers review their situation and determine what’s suitable for them. For any uncertainties – get in touch with your mortgage adviser.

The difficulty when looking at rates currently is trying to figure out if we will see the expected OCR increases which would have an influence on borrowing costs. It’s clear that the RBNZ does want to hike the OCR in the near future, however the unknown we all have to face is just how long we’ll be in lockdown and how long the delta variant will cause interruptions to these intended plans and the performance of the NZ economy.

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