Will The OCR Stifle The Building Industry?

I have an uneasy feeling that constant interest rate hikes may well stifle the building industry. On the one hand we have people crying out for affordable houses to be built. On the other hand by increasing interest rates we are making that dream more unaffordable than ever.

First home buyers have enough problems getting a 10% or 20% deposit together . Now they have to  factor in even higher payments than ever.

This will be good for investors with rental properties as logic dictates that fewer people will buy and more will have rent.

Unintended consequences indeed.

OCR hiked to 3.25pc, dollar jumps
Thursday Jun 12, 2014

Reserve Bank Governor Graeme Wheeler announced a rise in the Official Cash Rate of a quarter of a percent during a press conference in Wellington today. File photo / Mark Mitchell
The Reserve Bank of New Zealand raised the official cash rate for a third time while keeping its track for interest rates broadly in line with its March projections, suggesting the bank sees no need to pause in removing stimulus in an accelerating economy. The New Zealand dollar jumped three quarters of a cent against the US dollar following the announcement.

Governor Graeme Wheeler raised the OCR to 3.25 per cent, as expected, saying as inflationary pressures are expected to increase, “it is important that inflation expectations remain contained and that interest rates return to a more neutral level.”

Gross domestic product grew an estimated 4 per cent in the year to June, and has “considerable momentum,” he said. While low interest rates had played an important part in supporting growth in the past few years, “more recently, growth has become more self-sustaining and very low interest rates are no longer appropriate given the rise in inflationary pressures.”



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