RBNZ warns rising interest rates could test resilience of NZ economy

Follow us on Google News:
 RBNZ warns rising interest rates could test resilience of NZ economy
Image source: © 2022 Kalkine Media®

Highlights

  • The Reserve Bank of New Zealand released its Financial Stability Report today (2 November).
  • The report states that even though the economy has been resilient, downside risks persist.
  • High mortgages and rising debt servicing costs could lead to some imbalances in the economy.

The Reserve Bank of New Zealand (RBNZ) released its latest report on New Zealand’s financial stability today (2 November 2022)

The report states that the rising interest rates would lead to further increases in lending rates for households and businesses and this can lead to a slowdown in New Zealand’s economy.

The governor of the RBNZ Adrian Orr said that the rising global interest rates needed to curb inflation would test NZ’s financial resilience.

For that, he stated that the financial institutions have a role to play while supporting their customers and allocating credit to them.

Falling house prices

As per the report, one of the significant developments in New Zealand’s economy is the decline of house prices, which have fallen 11% from their peak in November 2021.  In Auckland and Wellington, they have fallen by 15% and 18%, respectively.

However, despite the fall, the prices remain at sustainable levels, according to the report.

However, the decline in prices means that some borrowers who bought houses in 2021 are now in negative equity.

The Reserve Bank said that even though negative equity and mortgage arrears were not widespread at the moment, they could potentially grow if prices continued to fall and mortgages rose due to increasing interest rates.  In this context, the report highlighted that while currently only  2% of mortgage lending was in negative equity, it could rise to around 7% if the house prices fell a further 10%.

Negative equity, the RBNZ said, increases the chances of a default by the borrowers. This could mean losses for the lenders (banks).

House construction slowdown

The RBNZ in its financial stability report also warned that housebuilding activity is likely to slow down due to falling prices, a rise in the cost of construction, and rising interest rates.

Businesses

The report said that New Zealand businesses continue to face a difficult operating environment but the overall profitability of New Zealand businesses remains healthy as most companies have been able to preserve their profit margins.

Business lending has so far been resilient but in the coming days it could feel the pinch as well.

 

Disclaimer

The content on this website, including, but not limited to, any articles, news, quotes, information, data, text, reports, ratings, opinions, images, photos, graphics, graphs, charts, animations and video (“Content”) is a service provided by Kalkine Media New Zealand Limited (Kalkine Media, we or us) and is available for personal and non-commercial use only. The principal purpose of the Content is to educate and inform. The Content does not contain or imply any recommendation or opinion intended to influence your financial decisions and must not be relied upon by you as such. Some of the Content on this website may be sponsored/non-sponsored, as applicable, but is NOT a solicitation or recommendation to buy, sell or hold the stocks of the company(s) or engage in any investment activity under discussion. Kalkine Media is neither licensed nor qualified to provide financial advice through this platform. Users should make their own enquiries about any investments and Kalkine Media strongly suggests users seek financial advice from a financial advice provider, stockbroker or other professional (including taxation and legal advice), as necessary. Kalkine Media hereby disclaims any and all liability to any user for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising from any use of the Content on this website, which is provided without any express or implied warranties of any kind. The views expressed in the Content by the guests, if any, are their own and do not necessarily represent the views or opinions of Kalkine Media. Some of the images/music that may be used on this website are copyright to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures displayed/music used on this website unless stated otherwise. The images/music that may be used on this website are taken from various sources on the internet, including paid subscriptions or are believed to be in public domain. We have used reasonable efforts to accredit a source wherever it is indicated or is found to be necessary or desirable.

Featured Articles

We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK