Budget likely to lead to higher interest rates

Stuff reports: The Reserve Bank is likely to be unimpressed by the Government’s injection of money into the New Zealand economy, economists say – and it could mean higher interest rates to come. After accounting for reprioritisation and reshuffling of spending, this year’s Budget is set to add more than $5 billion in additional spending […]

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Stuff reports:

The Reserve Bank is likely to be unimpressed by the Government’s injection of money into the New Zealand economy, economists say – and it could mean higher interest rates to come.

After accounting for reprioritisation and reshuffling of spending, this year’s Budget is set to add more than $5 billion in additional spending in the year to June 2024, compared to predictions in the half-year update.

Infometrics chief forecaster Gareth Kiernan said that was likely to weigh on the Reserve Bank’s mind when it made an official cash rate (OCR) decision next week. The rate is currently at 5.25% but is expected to increase.

He said the bank took a “dim view” of the lack of fiscal restraint or assistance it was getting from the Government in trying to balance the economy.

So floating mortgage rates are already above 8% and thanks to Grant may hit 9%.

“This was the year we were hoping inflation was going to be brought down and demand was going to rebalance across the economy. The timing couldn’t be worse really.”

Bond issuance will increase significantly, with an additional $20b of bonds issued over the next four years, twice the rate predicted by ANZ. Net debt is forecast to reach $95.3b by 2025/26 compared to $5.4b in 2019.

$90 billion of borrowing, and it is no surprise we have high inflation.

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