Repeated hikes to the interest-driving official cash
rate, starting today, could add more than $100 a week to
mortgage repayments within two years, Council of Trades Union
economist Bill Rosenberg warns.
The Green Party is also claiming a possible loss of up to
30,000 jobs, as the official cash rate (OCR) hike dampens
economic output and further underpins the already strong New
After more than three and a-half years of the OCR at a
record-low 2.5%, Reserve Bank governor Graeme Wheeler is
expected to begin increasing the cash rate today by at least
25 basis points, and many economists pick additional hikes
totalling 2% by the end of 2015.
While economists are almost unanimous the Reserve Bank should
raise the OCR, to quell household spending and rising
inflation, Mr Rosenberg warned that for many households the
immediate change to floating mortgage rates ''will go
straight into higher housing costs''.
''There is pressure from financial markets to raise the rate
by at least 1 percentage point, from 2.5% to 3.5%, by the end
of the year and a further percentage point, to 4.5%, by the
end of 2015,'' Mr Rosenberg said in a statement.
He estimated each 1% rise would cost a family $20 per week,
for each $100,000 of their mortgage.
He predicted a family with a $300,000 mortgage could face $60
a week in extra costs by the end of 2014 with the OCR at
3.5%, and $120 per week by the end of 2015 at 4.5%.
He also highlighted that businesses wanting to borrow to fund
expansion would have to consider whether they could meet
higher borrowing costs.
''That could reduce job growth and improvements in
productivity,'' Mr Rosenberg said.
Green Party Co-leader Dr Russel Norman said the National
Government had failed to contain rising house and power
prices, which was prompting the OCR hike, which could cost up
to 30,000 jobs.
He said Reserve Bank papers obtained by the Green Party via
the Official Information Act showed a 1% rise in the OCR
reduced economic output by 0.5%-1% and increased unemployment
by 0.5%-1.2%, compared with the OCR not being raised.
''That equates to 12,500-30,000 fewer jobs in the economy
than if the OCR wasn't increased,'' Dr Norman said.
Mr Rosenberg said if the Reserve Bank saw house price
inflation as the ''main danger'', it should address that
directly, as its loan-to-value (LVR) restrictions on bank
lending were aimed mainly at financial sector stability, not
house price stability.
The Reserve Bank could use other policies, such as raising
bank capital requirements for housing loans, tightening
banks' core funding ratios, or more directly restricting the
use of overseas funds.
''Any of these must be accompanied by much stronger
government action to ensure they don't end up hurting those
who need good housing the most,'' Mr Rosenberg said.
Although the economy as a whole was recording strong gross
domestic product (GDP) growth, if the boost from rebuilding
in Canterbury was removed, ''the growth looks very modest'',
Unemployment was still at 6%, with 147,000 people unemployed,
257,100 jobless, and 122,600 part-time workers wanting to
work more hours, he said.
If New Zealand's interest rates rose faster than in other
countries, there was a risk to the exchange rate becoming
stronger and New Zealand's international indebtedness
increasing, Mr Rosenberg said.
''Rising interest rates, with the difference between New
Zealand and the rest of the world growing, will attract an
influx of money, raising the exchange rate and hurting
exporters,'' he said.
An OCR hike would encourage New Zealand banks to use overseas
borrowing to fund mortgages, raising overseas indebtedness,
which would make the Reserve Bank's actions less effective,
Mr Rosenberg said.