Interest rate relief “less far off”

But they make clear that significant pain relief is still around 18 months away.

The Reserve Bank (RBNZ) last week pushed up the Official Cash Rate (OCR) by an unprecedented 75 points, and contemplated a 100 point rise before finally ruling it out.

The rise is expected to be followed by more next year and the RBNZ itself expects the OCR to peak at 5.5%.

This is likely to push fixed interest rates above 7%, according to the property analyst, CoreLogic. Floating rates are expected to be higher again, though it is not clear how big that margin will be.

This will put a heavy burden onto borrowers who will see their interest payments rise by 200 points and even more.

But Satish Ranchhod of Westpac thinks the pain caused by all this hardship could fix the problem slightly sooner than was expected.

Despite strong and persistent inflation, the risk of a wage price spiral, and a “necessary” recession, Ranchhod saw a glimmer of hope.

“We think a note of caution is needed here,” he said.

“Many borrowers are still on the very low rates that were on offer during the early stages of the pandemic. That picture will change dramatically over the coming year.

“Over the next 12 months, more than half of mortgages will come up for repricing, and many borrowers will face interest rate rises of 2% or more. That will certainly pull down spending and employment.

“Consistent with that, we now expect OCR cuts to begin in early 2024, six months earlier than we did previously. Those rate cuts are both earlier and faster than what the RBNZ is projecting.”

Kiwibank economists take a similar tack. Despite forecasting robust action from the RBNZ next year, they expect it to do so, using more temperate words.

“Given that other central banks have, or are about to, slow the pace of rate hikes we expect them to moderate their language,” the Kiwibank team wrote.

“We suspect the RBNZ (along with every other inflation fighting bank) will be in a position to ‘pivot’, and slow rate hikes ….. we hope.”

ASB chief economist Nick Tuffley also expected harsh actions from the RBNZ but also thought there would be different trends emerging later.

“We expect a 75bp OCR hike in February and a 50 bp hike in April, taking the OCR to 5.50%.,” he wrote.

“OCR cuts are pencilled in from the second half of 2024 as the OCR is returned towards neutral levels, closer to 3%.”

So all three economists saw less pain in 2024, precisely because the pain in 2023 would be so intense.