-
Related
Homeowners are bracing themselves for a new round of mortgage interest rate rises following Thursday's hike in interest rates.
The Official Cash Rate was raised for the third time this year and now stands at 8% - the highest in the industrialised world.
Reserve Bank Governor Allan Bollard, said that it is not yet clear if the previous rises were having an impact on the economy.
As a result of the latest increase some fixed-term mortgage rates are expected to top 9%.
Economist Gareth Morgan says now is not a good time to get into the housing market.
Morgan says it seems the Reserve Bank will continue increasing the Official Cash Rate until the heat is driven from the housing market. In the meantime he says potential investors in the market should sit tight.
Government spending
The government is being partly blamed for the unexpected rise in the Official Cash Rate.
Reserve Bank Governor Alan Bollard specifically mentioned the state of the NZ dollar as he raised the OCR to 8%. He says the dollar is exceptionally high and unjustifiably so on the basis of fundamentals.
Bollard also blamed government spending for the need for the quarter percent increase.
Gareth Morgan also believes the government is spending too much.
Morgan believes Finance Minister Michael Cullen is spending too much on saving health boards and building roads. He says the economy doesn't care what you label the money - if everyone is spending, inflationary pressure builds.
Morgan says a cutback in government spending would ease inflationary pressures but he says with the election next year that is not about to happen.
Retailers brace for tough times
Retailers are bracing for a tough time ahead thanks to the latest rise.
Retail sales volume soared at a record price in the first quarter as consumers stepped up spending on cars and appliances.
But the Retailers Association says the Reserve Bank should have taken a wait and see attitude, because previous rises had begun to bite, slowing down retail spending over the past six weeks.
Chief Executive John Albertson says the OCR reaching 8% will have a psychological impact on retail. He says the competition in the market is going to intensify with few dollars around and that will put retailers under margin pressure.
Albertson says there is every indication that retail sales have already started to slow down.
