RBNZ Survey: 64% Of Experts Say Rising Inflation Will Push More Kiwis Into Debt

News highlights:

• 27% of panellists believe the OCR will increase at every remaining meeting this year
• Just over half of experts agree with tighter lending rules for home loans
• All economists predict an OCR increase in May

23 May 2022, New Zealand – Soaring inflation and cost of living pressures will see many households pushed to the financial limit, according to experts.

In this month’s Finder RBNZ Official Cash Rate Survey, 15 experts and economists weighed in on future official cash rate (OCR) moves and other issues relating to the state of New Zealand’s economy.

While all experts surveyed (100%, 15/15) predict that the OCR will increase again in May from the current 1.5%, 1 in 3 panellists (33%, 5/15) believe another rate rise is imminent in July.

Interestingly, 27% believe the cash rate will increase at every remaining decision meeting until the end of 2022.

Taylor Blackburn, personal finance expert at Finder, said rising inflation could see a doubling of the cash rate this year.

“An avalanche of rate rises is coming at Kiwis thick and fast.

“This is potentially good news for slowing down this runaway property market, but those with a home loan are staring down the barrel of higher monthly payments,” Blackburn said.

Households will feel the pinch

The Consumer Price Index rose by 6.9% over the 12 months to March 2022, its highest increase in 30 years.

Around two-thirds of economists who weighed in* (64%, 7/11) believe rising inflation will push more Kiwi households into debt.

Alfred Guender from the University of Canterbury said some households will feel the crunch more than others.

“Indebted households on flexible [interest] rates will surely suffer, but whether debt per capita increases remains to be seen.”

Blackburn said many Kiwis were already feeling the pinch.

“If you're struggling to save money, shopping around for better deals on your regular expenses is a good place to start.

“Some savvy swaps – like cutting back on memberships and subscriptions or refinancing your home loan – could save you hundreds if not thousands of dollars a year.”

Finder's Economic Sentiment Tracker gauges experts' confidence in 5 key indicators: housing affordability, employment, wage growth, cost of living and household debt over the next 6 months.

Experts remain particularly negative towards cost of living (75%), and household debt (58%).

Experts split on tighter lending rules

Just over half of panellists (58%, 7/12) agree with the introduction of tighter rules on mortgage lending standards, which include a reduction in the availability of loans for borrowers with a deposit of less than 20%.

Several experts cited financial stability as the justification, including Brad Olsen of Infometrics.

“Financial stability was at risk, with a higher volume of risky lending occurring,” said Olsen.

However Ashley Church from Ashleychurch.com disagreed, noting that the rules had hurt first home buyers in particular.

“All they have achieved is to squeeze first home buyers out of the market,” said Church.

Dr Oliver Harwich from The New Zealand Initiative said the government should leave it to the banks to decide on the deposits they require.

*Experts are not required to answer every question in the survey

Here’s what our experts had to say:

Debbie Roberts, Property Apprentice: "The RBNZ has already indicated that they will increase the OCR."

David Shaw, REINZ: "Inflationary pressures are very high and whilst OCR is the primary tool for fighting inflation I expect it will increase in the short to medium term"

Brad Olsen, Infometrics: "Inflation remains at a generational high, and expectations remain elevated. The Reserve Bank needs to increase the OCR by 50 basis points in May, and possibly again in July. Larger increases, sooner, could well limit just how high the Reserve Bank needs to raise rates over the course of the next few years. "

Sharon Zollner, ANZ: "Inflation is miles above target and broad-based, with extreme capacity stretch evident in the economy. However, with the housing market in a galloping retreat we expect the RBNZ to revert to 25bp hikes from July onwards."

Robin Clements, UBS NZ Ltd: "Once the OCR reaches and then exceeds 'neutral' sufficient evidence will accumulate suggesting inflation will return to the midpoint of the target band over the medium term, causing the RBNZ to be stopped-out at 2.50% "

Alfred Guender, University Of Canterbury: "RBNZ signalled the beginning of a tightening cycle earlier in the year. So a further increase in its main policy instrument is to be expected."

Saten Kumar, Auckland University of Technology: "Inflation has been increasing rapidly. To curtail inflation down to the target level, higher OCR is warranted. I expect RBNZ to explore alternative methods to stabilise inflation. Their approach to sustainably raise OCR by bigger margins may be potentially detrimental to economic activity and employment especially when many businesses are still recovering their losses due to the pandemic. It is time the RBNZ should revisit their approach to stabilising inflation."

Ashley Church, AshleyChurch.com: "Because this is what Adrian Orr has told us he will do."

Dr Oliver Hartwich, The New Zealand Initiative: "Inflation expectations have become established. It is clear that inflation is not a temporary phenomenon. The RBNZ needs to act now to stop inflation leading to a wage-price spiral."

Mark Holmes, University of Waikato: "A very low unemployment rate plus signs that both inflation and inflation expectations are increasing. "

Jarrod Kerr, Kiwibank: "The RBNZ will most likely hike the cash rate another 50bps in May. The move will take the cash rate back to a more neutral setting at 2% - and is no longer stimulatory. Beyond the May meeting, we're expecting 25bp hikes to 3% by November. We suspect a move to 3% will be enough to turn the Kiwi economy and tame the inflation beast."

Leonie Freeman, PCNZ: "Following international trends."

Michael Reddell, Croaking Cassandra: "(Core) inflation has continued to rise, and the Bank will need to act (and be seen to act) quite aggressively in the near-term. Were they to raise by 100bps or more in the next 2 reviews there is some chance they would have done enough, given weakening economic indicators here (and in some other countries)."

Kelvin Davidson, CoreLogic: "The case is still clear for OCR rises – low unemployment, and high inflation. Given that it's fully expected to rise, it'd be more disruptive if they didn't actually increase it at the next meeting!"

Michael Gordon, Westpac: "Further rate hikes will be needed to bring inflation pressures under control."

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