On the Tiles: Deputy Reserve Bank Governor Christian Hawkesby on the tight balancing act in fighting inflation

The ongoing fight against inflation is being felt across New Zealand. Photo / NZME

The Reserve Bank made headlines this week by raising the official cash rate by 50 basis points despite the impact of Cyclone Gabrielle.

The OCR now sits at 4.75 per cent, its highest level since 2008, and the impact of this will eventually feed into the economy as fixed mortgage rates expire.

Speaking to the NZ Herald’s On The Tiles podcast, Deputy Reserve Bank Governor Christian Hawkesby admits that getting the balance right in the fight against inflation can be tricky because of the lag in the impact of monetary policy.

“In some ways, being a monetary policy maker you sort of live with a knot in your stomach,” says Hawkesby.

“You can’t see perfectly into the future. You know that there will be these lags and you’re not going to get a perfect indicator. No one rings a bell and says: ‘Yep, now’s the time.’ That’s a judgement that needs to be made.”

Hawkesby says that it’s still too early to announce victory against inflation and change course, but there promising international signs that we may have reached a peak.

So how much higher could mortgage rates possibly go in New Zealand?

“With the exception of the cyclone… the economy has largely evolved as we were anticipating,” says Hawkesby.

“We signalled back in November that the OCR might get up to around 5.5 per cent this, and that story continues largely the same. It’s something that was signalled really well to financial markets, so wholesale interest rates had already moved. And when we made our decision this week, those mortgage rates largely stayed where they are.”

Looking at those wholesale mortgage rates that are paid by homeowners, Hawkesby anticipates that they are likely to stay at around 6.5 per cent for a two- to three-year fixed mortgage for “some time yet”.

This is lower than the fears that homeowners could be looking at rates as high as 8 per cent, but the economic situation around the world remains quite uncertain at the moment.

Listen to the full podcast of On the Tiles to hear who will be worst affected by these mortgage rates, why the rental market will likely also go up, and why savers stand to benefit from these circumstances.

On the Tiles is available on iHeartRadio, Apple Podcasts, Spotify or wherever you get your podcasts. New episodes are available on Fridays.