Reserve Bank Expected to Hike Official Cash Rate Again

The Reserve Bank of New Zealand is expected to raise the Official Cash Rate (OCR) for the second time in three months, and borrowers should be prepared for floating mortgage rates to increase almost immediately.

Last month, the OCR was raised from 2.25% to 2.5%, and markets are pricing in a 90% chance of another hike to 2.75%. If this happens, banks will likely raise their floating mortgage rates soon after.

However, fixed mortgage rates may not be affected as much, since the cost of borrowing at a fixed rate for a fixed term is based on where the OCR is expected to go over that period, not its current level. But there are caveats, banks' lending margins have been narrowing in recent months, and if they narrow further, some banks might raise their fixed mortgage rates.

Independent economist Tony Alexander notes that forecasting has become increasingly difficult due to various global factors, including the impact of AI on employment and productivity, higher electricity prices, trade wars, and El Nino. He also mentions the upcoming general election in New Zealand as a potential factor.