How has the Reserve Bank shocked economists?

When the Reserve Bank of New Zealand (RBNZ) announced that the cash rate was holding firm at 3.5 per cent, it will have offered some well-received stability to those with investment properties in Auckland and elsewhere in the country. It means interest rates will likely remain the same for now and business can continue as usual.

However, there was one line in the media release that left many economists reeling:

"Future interest rate adjustments, either up or down, will depend on the emerging flow of economic data."

So why is this such a big deal?

The Reserve Bank has not been open to cuts

This may not seem particularly important at first – I mean, the cash rate (OCR) has to go down at some point, right? But in reality, this is the first time the Reserve Bank has even mentioned the idea of a rate cut in a very long time, let alone been accepting of it. 

Writing for interest.co.nz on January 29, commentator Bernard Hickey went as far as to say it was the first time the bank has mentioned this possibility. He expected the OCR to stay where it is for most of the coming year, while banks slowly brought interest rates down toward 5 per cent. 

The impact spread wider than people expected, however. Darren Gibbs, chief economist at Deutsche Bank spoke to Newstalk ZB and noted that our dollar fell by a cent as a reaction to the announcement. 

Mr Hickey stated that floating interest rates are more likely to be affected by the OCR than fixed rates.

Overall, the basic principles remain: Make sure you get plenty of investment advice before you move ahead into buying a property. A Goodlife Authorised Financial Adviser is an excellent port of call if you are unsure about what the Reserve Bank statement means for you. 

Here's to your financial independence!

Daniel Carney
Authorised Financial Adviser / Investment Property Expert