An End To The Pain?

On Wednesday, the Reserve Bank increased the OCR (Official Cash Rate) for the 12th straight time. It now sits at 5.5%.

This will have been scary for some and just another increase for others.

The Reserve Bank said this increase should have already been factored in by most banks in terms of rates for debt they are selling as well as payments for deposits.

Recently, the banks you and I use started to anticipate that the OCR would reach 6% but the Reserve Banks forecasted OCR graphs that came out this week show the current 5.5% being about as high as they should need to go to kill the inflation demon.

Note: the banks have been horrible at predicting where rates will get to but hey, they still get the coverage. I.e. the same bank that said we will now see a 6% top only saw a 3.5% top 12 months ago.

Grain of salt and all that! Remember to budget for higher rates and higher inflation and you’ll then take actions toward combatting both and hopefully, you get a triple treat where you’ve increased your income, get lower inflation than expected and interest rates start to fall.

The good news though is that the Reserve Bank, have forecast out into the future and, at present, the OCR looks to have peaked and will decline from here to be just above 3% in 2026.

That will no doubt excite a lot of people. But given that it's been so uncertain, it’s not easy to trust the experts in charge at the moment, is it?

The KTC Instagram audience voted on whether this would be the end of OCR increases and 79% said no.

We might need some counselling because we’ve got some serious trust issues.

Even if the OCR has peaked, it doesn’t mean that it just decreases rapidly from here. In fact, the Reserve Bank had this to say:

The Monetary Policy Committee reached a consensus that interest rates will need to remain at a restrictive level for the foreseeable future, to ensure consumer price inflation returns to the 1 to 3% target range while supporting maximum sustainable employment.?

Dont be surprised if the OCR stays higher for longer. (See this weeks 'Did you know' below....).

What the hell is a ‘restrictive level’? Who knows but it sounds like 50/50 language designed to give them room to have a rate that can stay on top of inflation.

Anyway, 2026 is a long way away in a world of AI, weather events, disasters, elections, economics and financial hurricanes.

So don’t get too comfortable and believe that it’s all smooth sailing from here. OR that your house price will rocket up again and you can borrow for a new, sustainable, filtered spa bath on the deck you through would add value to your house during the pandemic. A unicorn isn’t coming to sh!t out a pay rise in your back yard for you to make cash angels in either. That’s not how money works.

At the last OCR announcement and increase, I reminded you to be aware that from the 1st of July your petrol is going to become more expensive too. Don’t forget to budget for that. The current subsidy on fuel we have all gotten used to won’t be extended.

The next OCR update is the 12th of July 2023 so we have a couple of months to wait to see what happens next. All of the forecasts will be updated again.?

In the meantime, a reminder: ALWAYS map your actions toward achieving the things that YOU want from YOUR life.

What’s your plan? Where are you going? What do you want? Who do you want to be? How do you want to do it?

I.e. if you want to pay off your mortgage faster, don’t rely on a future OCR drop for your interest cost to decrease. What actions can you take to clear more of your mortgage faster?

Don’t just look at the current period too, make this a 1 to 2 decade project.

These economic times will change, so think about the longer term and beyond the current inflation and OCR sh!t show we’ve had to live through.

You’re a leader whether you like it or not. A leader of your household, a leader of your education, your children’s education and a leader of the attack on your mortgage.

A key role of a leader is to bring certainty to an uncertain situation. It’s sure as sh!t been uncertain out there so do what you can to bring some certainty back to your situation.

The Reserve Bank tried to do that for us this week. But I haven’t done my counselling sessions so I’ve got trust issues and I suspect you do too.

Don’t take this week as a ‘she’ll be right’ moment, because no one knows what’s around the corner, even the experts.

On ya toes,

Luke