More mortgage pain is on the way. And the Reserve Bank (RBNZ) is warning it may continue to worsen.
Yesterday, the RBNZ increased the official cash rate (OCR) 50 basis points (bp) to 2% - the highest rate since 2016.
It was the second 50bp increase this year, as the central bank tries to get rapidly rising inflation under control.
It now expected the cash rate to peak at 3.9% in June 2023, compared with its earlier forecast of 3.4% by mid-2024.
Independent economist Benje Patterson, of Arrowtown, was not surprised by yesterday’s hike.
He has previously said he did not think a larger hike was necessary because the cash rate had already been lifted aggressively.
Mr Patterson said yesterday’s statement did not acknowledge that mortgage rates had already risen "really, really strongly".
It seemed at this stage the bank had signalled further 50bp hikes were on the cards, he said.
The RBNZ was trying to get the public conditioned to the idea the bank was not messing around.
He did not think the bank would be able to get it to its new forecast peak without becoming more aggressive, he said.
"If that’s the case, the speed wobbles they are concerned about might become a little more wobbly."
The bank "really reaffirmed" it was committed to getting inflation under control.
Westpac acting chief economist Michael Gordon said the "real interest" was always going to be in the central bank’s projections for further cash rate moves, and that proved to be more aggressive.
The RBNZ’s intention was to keep monetary policy "tight" for long enough to bring demand and supply into better alignment, before returning interest rates to more sustainable long-term levels.
Concern about inflation expectations, and the perceived need to reassert the 2% midpoint of the inflation target, had been an "ongoing and escalating" theme of recent RBNZ statements, Mr Gordon said.
Westpac believed the cash rate would have to keep rising into 2023 and by that time the main drivers behind inflation would likely be looking less "ominous".
The kiwi jumped more than 0.5c against the greenback, rising to US65.0c, after yesterday’s announcement.
