Chart of the Month: How long until interest rate rises hit borrowers?

The Reserve Bank’s August 2021 Monetary Policy Statement made it clear that interest rates will continue to be pushed higher. Demand conditions across the New Zealand economy are strong, but supply issues are creating heightened labour market and inflationary pressures.

Changing tack on interest rate expectations

Inflation has picked up rapidly and is set to spike higher in coming months, and the Reserve Bank has confirmed a strong tightening bias in its monetary policy settings. As a result, we have changed our outlook for monetary policy. We are now picking an increase in the official cash rate (OCR) next month, and we see potential for a rise of 50 basis points.

Media Release: Pressures mounting in NZ’s overstimulated economy

The New Zealand economy is growing at an unsustainable rate, fuelled by the massive fiscal and monetary stimulus applied over the last 16 months in response to the COVID-19 pandemic. Infometrics’ latest forecasts predict that economic growth will climb to over 5%pa this year, with growth in household spending reaching 10%pa. These strong demand conditions are being accompanied by a wide range of cost pressures that are creating serious inflationary risks, with the burst of demand unlikely to hold up.

Economic forecasting’s spectacular failure around COVID-19

This time last year, the government closed the borders and then sent New Zealand into a lockdown that saw life virtually come to a halt. Amid this disruption, economists rapidly slashed their forecasts for GDP and employment. But economic activity has bounced back from lockdown largely unscathed, and the unemployment rate has only lifted from 4.2% to 4.9%. Why did forecasters get it so wrong?

Media Release: Double-dip recession next year, but housing rolls on

Despite rebounding well from the initial lockdown and effects of the COVID-19 pandemic so far, the New Zealand economy remains vulnerable, according to the latest projections from Infometrics. The company is forecasting a double-dip recession to hit during 2021, as delayed job losses punch a hole in consumer spending and drag economic activity lower.

Media release: Economic fall-out of COVID-19 to be fully felt in 2021

New Zealand’s successful public health response to the COVID-19 pandemic should not be taken to mean our economic struggles are over, according to Infometrics’ latest forecasts. Given that life has largely returned to “normal” at Alert Level 1, economic outcomes in the near-term will be better than initially feared. However, the full effects of the border closures, business failures, and job losses will only become apparent over the next 18 months.