The new Reserve Bank Governor says banks hiking their mortgage rates so soon after the central bank’s cut the official cash rate “risks putting a dampener on New Zealand’s economy”.
Dr Anna Breman spoke exclusively to 1News in her first one-on-one interview since she took the reins of the RBNZ.
The swedish economist was at pains to point out her focus is squarely on inflation, which is expected to drop from the current 3% level, to closer to 2% heading into the middle of next year.
“I think it’s also my job now to better explain the role of the Reserve Bank in the New Zealand economy and really explain why it’s so important that we focus on these core mandates that we have,” she said.
Watch: RBNZ boss says mortgage rate hikes ‘risk dampening NZ economy’ on TVNZ+
“I will be relentless in reminding everyone why this is important and why it’s so hard to get healthy growth in a strong labor market unless you have low and stable inflation.”
Both westpac and ANZ have hiked respective three-to-five-year mortgage rates by 0.3 percentage points – that’s despite the Reserve Bank cutting the official cash rate to 2.25% late last month.
Breman was not part of that decision, as she took over as Governor on December 1.
But the bank’s move prompted Finance Minister nicola Willis to tell New Zealanders that, when it comes to their mortgage: “Shop around”.
Mortgage Rates Could Fall Further After Westpac’s Cut,Expert Says
Westpac’s decision to cut mortgage rates has sparked speculation about further reductions from othre banks,with one industry leader suggesting the Reserve Bank (RBNZ) may have misjudged market reaction to its recent monetary policy.
Bruce Patten, chief executive of New Zealand Financial Services Group and Loan Market, believes the RBNZ’s interaction following its last rate cut contributed to the current situation.He referenced comments made by former Acting Reserve Bank Governor Christian Hawkesby, who indicated the Official Cash Rate was likely to remain stable through 2026.
“We have published a central projection for the Official Cash Rate that would be consistent with the Official Cash Rate being on hold through the course of 2026,” Hawkesby stated previously.
Patten contends the RBNZ underestimated how the market would interpret this guidance. “I just think they really didn’t expect the markets to react the way they did,” he said.
He believes the RBNZ’s messaging implied November’s 0.25% cut was the last in the easing cycle. “I think they just made a mistake in their commentary. What they should have said is, ‘hey, there could be some more easing still to come. We don’t know yet. We’re just waiting and seeing’. Whereas they sort of pretty much said,’hey,that’s it. It’s all over.'”
Patten anticipates other banks will follow Westpac’s example and begin lowering rates during the Christmas period – a possibility that is clearly influencing the thinking of others in the industry.
Reserve Bank Governor Signals Vigilance Over Potential Growth Dampening from Rate Cuts
Reserve Bank Governor dr. Anna Breman has indicated the central bank will closely monitor the impact of recent interest rate cuts on economic growth, particularly concerning potential increases in mortgage rates by commercial banks. Speaking to 1News, Dr. Breman emphasized the goal of stimulating the economy while maintaining a focus on controlling inflation.
The Reserve Bank recently cut the Official Cash Rate (OCR), a move intended to provide support to the economy. https://www.rbnz.govt.nz/monetary-policy/official-cash-rate-ocr Dr. Breman expressed hope that this cut would translate into stronger economic growth and a robust labour market.
However, she acknowledged the risk that banks may raise mortgage rates in response to broader economic conditions, perhaps offsetting the stimulatory effect of the OCR reduction. “My outlook is that if we see a lot of tightening, we have to be very vigilant as we don’t want that tightening to reduce the growth that we’re starting to see happening right now,” she stated.
Dr. Breman explained that the central bank’s primary objective is to foster healthy economic growth while keeping inflation “low and stable.” She added that if bank responses to the OCR cut dampen the emerging growth, the Reserve Bank would need to take that into consideration.
“The purpose of cutting the OCR is to provide support for the economy,and that’s what we want to see happening,” she said. “Again,markets react and I’m not going to comment whether it’s right or wrong,but I will say that we are looking for this to translate into healthy,stronger growth in the stronger labour market while keeping that laser focus on inflation to ensure that inflation is low and stable.”