Kiwis Fall Behind in Debt Payments as High Interest Rates Bite
Comment of the Day

July 04 2023

Commentary by Eoin Treacy

Kiwis Fall Behind in Debt Payments as High Interest Rates Bite

This article from Bloomberg may be of interest to subscribers. Here is a section:

New Zealand’s central bank has tightened aggressively in the past year and a half, taking the Official Cash Rate to its highest since 2008 and driving up the costs of home loans, vehicle finance and personal borrowing. The rising cost of repayments is adding to a squeeze on consumer spending, adding to the risk of sluggish economic growth for the remainder of 2023.

“There’s no question some Kiwi households and businesses are walking an economic tightrope,” said Centrix Managing Director Keith McLaughlin. “It’s no secret a recession was the Reserve Bank’s goal to help curb spending. What remains to be seen is how the rest of 2023 plays out for consumers and businesses on the front line.”

New Zealand was in recession earlier this year, and most economists expect another contraction will hit later in 2023, although their view on the timing is mixed. The RBNZ has said a recession was needed to slow demand and bring inflation back to the 1-3% band it targets.

Eoin Treacy's view

New Zealand has a long record of taking hard medicine when required. It is common sense that demand needs to take a shock if persistent inflationary pressures are to be overcome. That’s especially true when wage demands are rising, and the interest rate sensitive portions of the economy have already been addressed with higher rates. Other central banks are on a similar trajectory but are not as forthcoming in sharing their intentions.

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