Unexpected Change in Market Predictions Indicates Interest Rates Hikes, Not Cuts, for NZ Homeowners

Date Published: 13 February 2024

Key Facts

• Economic data has caused markets to revise earlier expectations of a cash rate cut.
• ANZ predicts that the official cash rate will increase twice more this year, a significant shift from a predicted cut in August.
• Financial markets initially expected OCR cuts beginning as early as July. Now, they anticipate another hike by May, though they still believe cuts will follow.
• The one-year swap rate, as of this update, was 5.71 percent, up from 5.33 percent on 5 February.
• Stronger-than-expected wage growth data prompted the revision of many forecasts.
• Markets are dealing with a great deal of uncertainty, leading to volatility in rates.

Article Summary

The property and financial markets have seen a sudden shift in expectations around interest rate movements. Previously, markets had been expecting a cut in the Official Cash Rate (OCR), however, ANZ predicts that the OCR will increase twice more this year, departing from an earlier forecast of a cut in August. This shift comes in response to stronger-than-expected wage growth data that has sparked a re-evaluation of numerous forecasts.

Wholesale markets are experiencing a comparable shift. Just last week, financial markets were pricing in OCR cuts from as early as July. However, they are now fully pricing another hike by May, while still predicting that cuts will start soon after. This shift has led to a significant rise in wholesale rates, especially at the shorter end.

The current market uncertainty is causing a lot of volatility with rates. While the rates market has swung to price in an increase in the short term, it still anticipates a cut shortly after. This suggests that although the Reserve Bank might raise rates soon, they could quickly reverse course. Borrowers should be ready for this volatility. Additionally, even if the rates are likely near their peak, a sustained fall may not happen soon.

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