While the economy has climbed out of recession, we’re yet to see much of an improvement in households’ finances but there are some encouraging signs emerging.
We’ve seen inflation stabilise and interest rates have dropped and together that has helped a lot of Kiwi households. The economy seems to be slowly recovering too and we’re starting to hear some good news stories instead of just the doom and gloom we’re endured for the past 2-years or more.
The hope is we are now going in the right direction and we might see a real recovery gain momentum.
Fingers (and toes) crossed!
The OCR Drops Again
On Wednesday 9th April the Reserve Bank announced the Official Cash Rate (OCR) drop of another 0.25%, which was highly anticipated and didn’t surprise anybody in the market. The follow-on effect was an immediate drop in the floating rates by all of the banks – again as expected.
That means the OCR is currently at 3.5% having been dropped from 5.5% since August of last year, and with recent economic data some bank economists are now predicting that it could go as low as 2.5% before the end of the year.
Now we look and wait to see what effect this may have on the fixed rates.
We do know that the banks have scope to move on the fixed rates, as their cost of borrowing has dropped as well. We have been able to get some quite good rates from some of the banks, and we would hope that that will continue. Expectation is we might see some drops in the advertised fixed rates over the next week or so.
Trump Fuels Uncertainty!
Speaking of uncertainty, nobody has created more uncertainty in the world recently than Donald Trump.
The tariffs are certainly on everybody’s minds, and they have certainly also created a lot of turmoil in the world’s share markets. Where is this going to end? I think that’s a question that everybody is asking.
There seems to be a perception that Trump is just flexing his muscle and trying to make sure that everybody recognizes how powerful he is, and that the tariffs were really just to bring people to the table to talk rather than as a permanent measure.
KiwiSaver Discussed
With the turmoil in the share markets, KiwiSaver has been a hot topic as well in our industry.
A lot of people have questioned if they are in the right fund, and the general consensus has been just to hold on and ride it through. This can be a little bit daunting at times when you see your fund values drop and it’s often a good idea to speak with your financial adviser to give you confidence if nothing else.
Some financial advisers will speak about dollar cost averaging – a concept where you continue to invest when the market is high and low and that way your buy price is averaged. Over the long-term you might benefit more from these periods of uncertainty than you would in tomes when markets are stable.
Refixing My Mortgage
The uncertainty also highlights how vulnerable New Zealand is as a market, and even though the expectation is interest rates are going to drop there is also the risk that something might happen in the world that means they don’t drop as expected.
Potentially, they could even increase.
I think with what Trump has done with tariffs and the economic effects that we have seen in recent weeks has highlighted there is a real possibility that anything can happen.
While as mentioned we still believe that rates could drop further, we’re now suggesting that people balance that with the potential risks of increases and so revert more to their longer-term mortgage strategy, rather than chasing the low rates.
It’s probably the right time to look at minimising risks and taking a more planned approach.
Budget 2025
Looking forward, we have the budget next month on the 22nd of May.
Most people are not expecting too much money being thrown around and the Government have been pretty hush-hush on what will be in the budget too. Of course everybody will be very interested to see if there’s any significant changes or if this will just reinforce the path that this Government are on.
Recent economic data had suggested that an economic recovery is well under way, but it is now looking a bit more stop-start than what forecasts had indicated. Lets hope that the budget will hopefully not create uncertainty, but instead give a level of certainty to the markets.
In Summary:
Most Kiwis were looking forward to a better 2025 and while it’s looking a bit better there is more uncertainty than anyone expected and that means we have to deal with areas of high risk.
It’s a time where we all need to be reviewing what we are doing with our money – our spending, savings, investment and of course any debt that we have.
