No Finance Minister wants to see a cash rate hike days before the election \u2013 during the early voting period no less. In fact, since Christopher Luxon set the election date at the beginning of the year, the potential for an October hike has been flagged as a major risk to the coalition\u2019s re-election chances.<\/p>\n
This view should be softened.<\/p>\n
The bank\u2019s decision to hold is neither obviously good nor obviously bad for the coalition\u2019s re-election chances. Equally, today\u2019s decision doesn\u2019t bolster the left\u2019s chances of taking power either.<\/p>\n
Finance Minister (and National\u2019s finance spokeswoman) Nicola Willis will be chuffed the nation\u2019s news media aren\u2019t filing stories on the bank hiking interest rates.<\/p>\n
But the decision isn\u2019t an obviously good one for mortgage holders. <\/p>\n
The market had all but priced in a hike today and had partly priced in subsequent increases. This was reflected in fixed mortgage rates offered by the retail banks, which had already risen in anticipation. If the bank had increased the OCR it probably wouldn\u2019t have led to higher fixed mortgage rates because those had been lifted pre-emptively. <\/p>\n
But cash rate hikes have been delayed, rather than cancelled. The bank\u2019s summary of the decision indicated Wednesday\u2019s move was framed as between an increase now and another at the next decision in December.<\/p>\n
Hikes, therefore, are not off the table, which means rates won\u2019t fall because of today\u2019s decision. <\/p>\n
Yes, mortgage rates are much lower now than when the coalition took office in 2023 (yes, thanks for that goes mostly to the bank itself and not the coalition), but today\u2019s decision doesn\u2019t mean extra cash in hand for most borrowers.<\/p>\n
Fixed rates are unlikely to move materially. Floating rates may have avoided a small bump up, but not forever \u2013 those rate hikes are still coming.<\/p>\n
The bank\u2019s summary of the decision presents a fairly balanced view of the economic outlook. Positively, it confirms the bank\u2019s view that an economic recovery of sorts is underway, and this was certainly happening at the beginning of the year, which will be welcome news for the Government.<\/p>\n
Voters seem a bit on the fence about whether they\u2019re feeling this recovery yet. They continue to tell pollsters they feel negatively about the economic outlook, but tell consumer confidence surveys they\u2019re feeling a bit better. Recent Westpac\u2013McDermott Miller and ANZ-Roy Morgan confidence surveys suggest consumers are feeling a wee bit better about their situations, having rebounded from recent lows, even if neither index suggests consumers are bursting with excitement about the economy.<\/p>\n
The bad news is this recovery is so weak the bank fears a hike may derail it, as has happened in the past after premature increases. A recovery, then, but a very fragile one.<\/p>\n
\u201cHouseholds and businesses exposed to domestic demand continue to face challenging conditions,\u201d the bank warned.<\/p>\n
In fact, the economy\u2019s weakness may be responsible for making sure inflation isn\u2019t worse than it is, with the bank noting some sectors were reporting that weak consumer demand was stopping them from passing on price increases to consumers. <\/p>\n
Good news from the perspective of keeping inflation low, but in the long term, you want an economy strong enough that firms don\u2019t have to eat higher input costs out of fear it\u2019ll put them out of business. It\u2019s certainly helpful for the case Labour is making, which is that today\u2019s non-hike isn\u2019t an endorsement of the coalition\u2019s economic management, but a riposte to it (but just as the coalition can\u2019t take full credit for rate cuts, it shouldn\u2019t carry the full blame for our current malaise). <\/p>\n
The bank still anticipates future hikes. Much economic commentary warns that delaying these runs the risk of the bank having to raise rates further and keep them higher for longer. Failing to get on top of inflation in the short term risks greater pain in the long term.<\/p>\n
But that\u2019s fundamentally an economics question.<\/p>\n
Politically, it\u2019s a problem the Government will deal with in December, when the next hike is likely to occur. The small matter of who is in government at that time (if we have a new one by then, which is unlikely) won\u2019t be greatly affected by today\u2019s decision.<\/p>\n","protected":false},"excerpt":{"rendered":"No Finance Minister wants to see a cash rate hike days before the election \u2013 during the early…\n","protected":false},"author":2,"featured_media":643734,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[15435,1643,31578,238807,10666,16639,18432,6101,5838,100302,21820,111,43,139,69,9061,18154,56639,10665,7812,223,210],"class_list":["post-643733","post","type-post","status-publish","format-standard","has-post-thumbnail","category-new-zealand","tag-bad","tag-bank","tag-chances","tag-coalitions","tag-cuts","tag-decisions","tag-did","tag-good","tag-help","tag-hikes","tag-lens","tag-new-zealand","tag-news","tag-newzealand","tag-nz","tag-often","tag-political","tag-reelection","tag-reserve","tag-seen","tag-the","tag-through"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/643733","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=643733"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/643733\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/643734"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=643733"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=643733"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=643733"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}