SURE TO RISE
Over the past couple of weeks, both savers and borrowers will have noticed an unusual phenomenon – after many years of ultra-low interest rates, they have started rising again.
In fact, it has been seven years since the Reserve Bank of New Zealand last raised its official cash rate (OCR), which has a significant effect on mortgage and term deposit rates. While the OCR is still extremely low in historical terms (it is now 0.5%), it is unlikely to stay that low for long.
Many central banks all around the world are planning similar moves amid global fears about rising inflation. So, what will be the consequences?
Interest rates were slashed in March 2020 to help our economy cope with the impact of the Covid pandemic, taking them to their lowest level in living memory. But now the economy has bounced back strongly, inflation (4.9% in the year to September) is running well above its 2% target, and employment is near its maximum sustainable level. It is no longer appropriate to have such drastic measures in place.
Over the next 12-18 months, it is likely that the OCR will be successively raised to somewhere near 2%. In
