Experts say Wednesday's raise in the official cash rate will sting for struggling businesses, first-home buyers, and the recently indebted.
Photo: RNZ / Nate McKinnon
The Reserve Bank unveiled another 25 basis points increase in the whole cash rate this afternoon, bringing it to one percent, with further raises expected.
It said employment is above its maximum sustainable level and inflation is trending above its targets - so it is appropriate to keep reducing financial stimulus in the economy.
The Monetary Policy Committee has also agreed to gradually reduce the Reserve Bank's bond holdings, through bond maturities and managed sales from July.
Kiwibank chief economist Jarrod Kerr said those actions were the "prudent" thing to do.
But he had a warning for struggling businesses who might be in for a cooling in consumer spending, and see their business lending rates become more expensive, as a result.
"Businesses who aren't held up in the Omicron outbreak at the moment, who aren't struggling at the moment, will keep chugging along. But this is not going to help those who are bogged down by supply chain issues and the Omicron outbreak," he said.
Banks are also likely to factor the official cash rate rise into their mortgage rates as well - which comes as a disappointment to First Home Buyers' Club director Lesley Harris.
She said people looking to get a foothold in the housing market have enough hurdles when it comes to house price hikes and strict lending rules.
"I really sympathise with first home buyers. It's just so tough. We're really living in hope that we'll see a refreshment of the Home Start Grant, things like that, to get some good news on the first home buyer's front. It is a bit unfortunate we're starting to see interest rates climb because that is one of the remaining positives," she said.
Michael Gallagher from Financial Advice Hawkes Bay said those who had recently taken out substantial debt, or a mortgage, could also feel a squeeze.
He said the message from the Reserve Bank was that interest rates would continue to rise - so he advised looking at long-term fixed rate mortgages.
"Interest rates have gone up 75bp since October and we're talking them going up another two percent by 2023 which is a year away. If you owe a million dollars, that's another $20,000 you might have to find. That's going to have a big impact. People, I don't think, have that money lying around to pay additional interest costs so it's going to be challenging," he said.
The Reserve Bank warned the economy could be knocked around by the current Omicron outbreak.
But Finance Minister Grant Robertson was optimistic any impacts wouldn't be long-term.
"Throughout Covid and particularly in recent times the overall New Zealand economy has done well. It's a sector by sector thing where the hard times are, and that's why we've stepped up with some additional support. I'm sure some people will be looking at the way in which their loans are managed and whether or not interest rates will go up. But in terms of Omicron I'm sure we can get through this quickly and in good shape," Robertson said.
He said it was one of the core roles of the Reserve Bank to manage inflation.
By using the "lever" of interest rates he said they responded accordingly.
