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Getting a rise from the news

It’s much easier to put bad news to one side if the bad news doesn’t come into effect immediately.

If there is an option to defer and make a conscious decision to worry about whatever it is later, perhaps much later, we almost always take up that delayed-response option and do nothing.

There will be some examples where doing nothing in particular about the bad news at the time actually paid off in the long run, thus encouraging us to do exactly the same the next time some bad news crops up, hoping for the same result. We tell ourselves, “we needn’t have worried.”

Some of us know this as the ‘she’ll be right’ approach. We are not actually dealing with anything; we are simply choosing to think about it later. And hoping it will somehow resolve itself.

There was some bad [or at the very least worrying] news on the home front that might easily fall into the ‘she’ll be right’ category for some homeowners.

Unexpectedly strong employment data has prompted ANZ economists to change their forecast for the Reserve Bank’s official rate path this year. It made a forecast last week of a 25-basis point hike this month and another in April, taking the official cash rate to 6 per cent – up from its current level of 5.5 per cent.

The latest labour market data showed unemployment rose to 4 per cent in the December quarter – the market had anticipated 4.3 per cent. It might not seem like much, but, more importantly, the figure went in the wrong direction as far as some economists are concerned. Thus, the Reserve Bank might see it as a sign that the economy is holding up better than expected and could increase pressure to hold interest rates at current levels for longer. To be fair, ANZ said a rise this month was something of 50-50 call. It was much more certain that a rise in April could be more than just pencilled in.

This is a very different set of forecasts the bank, and other banks for that matter, made as recently as December, when they were picking no movement and then some small reductions in the cash rate in the second half of this year. ANZ has now changed its forecast for cuts in August this year to February next year.

The Reserve Bank issued a strong hint in November that if inflation pressures were to be stronger than anticipated, the cash rate would likely need to increase further. And, because some of us didn’t like the sound of that, that little gem of information was probably put to one side. Since then, data has been a series of small but consistent surprises in that very direction.

The Reserve Bank has a job to do – to get inflation sustainably down to 2 per cent in the medium term. If they believe that they are not getting toward 2 per cent inflation effectively enough, they will lift the cash rate, which means mortgage rates will go up. Not down, as many homeowners may have been banking on in a ‘good news’ scenario.

Thus, the mortgage rate pain that many around New Zealand have been feeling could be around and hurting for a wee while yet.

Roger Parker
Roger Parker
Roger Parker is the Times-Age news director. In the Venn-diagram of his two great loves, news and sport, sports news is the sweet spot.

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