Cameron Bagrie warns 'good news is bad' as fears grow interest rates could stay higher for longer

A leading economist is warning even though New Zealand's economy is showing promising signs, it could actually be bad news for Kiwis with a mortgage.   

Many Kiwis have had to re-fix their mortgage rate this year from the low rates seen during the COVID pandemic of just above 2 percent to now around 6 percent.   

It comes as the Reserve Bank continues to battle stubbornly high inflation of 5.6 percent while the Official Cash Rate (OCR) remains high at 5.5 percent.   

But New Zealand's economy is showing positive signs with forecasters predicting a "soft landing".   

Independent economist Cameron Bagrie told AM on Tuesday the war in Israel and Gaza is also not helping and providing unneeded uncertainty.   

"If you look at core measures, strip out food and energy, they're coming down, but they're coming down at what's called a glacial pace," he said.  

"You get a bit of geopolitical, geostrategic uncertainty comes into the mix and then all of a sudden it looks like interest rates are going to need to be higher for a little bit longer over the coming year."  

Bagrie said the global and New Zealand economy has done pretty well this year and looks set to continue into 2024.   

But while that might sound like good news to most, Bagrie told AM co-host Melissa Chan-Green this could put more pressure on inflation, leading to higher interest rates.   

"It's that situation where good news is bad. The economy is not strong, we're sort of limping along, it's subdued," he said.  

"It's what we call sort of grumpy growth, but we need to see real weakness out there for the Reserve Bank to be satisfied that the inflation thief has been put back in jail."   

Bagrie said New Zealand is not alone in this, with countries like Australia and the United States also experiencing an improving economy.   

"Most countries around the globe are generally seeing housing markets start to sprout back up, unemployment is still really low, which is a good sign. Unfortunately, that adds to a little bit of inflation pressure as well," he said.   

"So it's this real delicate balancing act that we don't want to beat the economy up too much to get inflation back in jail, but we don't like inflation either and the recipe in regard to getting inflationary thief back in jail is to dish out a little bit of economic harm and you do that by that interest rate lever."  

Bagrie told AM it's not just homeowners being affected by the potential jump in interest rates, it's also businesses.   

"A bit over one-third of lending goes into your business sector, your corporates, your farming sector, your consumer loans, etc and what we're seeing out there at the moment is as interest rates move up, and it's not just the official cash rate, it's those longer-term interest rates," he said.   

"If you look at New Zealand, ten-year bond 5.6 percent, US 10-year bond just below 5 percent - it's not exactly a frightening number. When you look at where we have come from and where we are now and the fact it's the biggest rise, the biggest repricing of risk we've seen since 1980, it's a big economic adjustment because it raises the hurdle rate for new investment that raises borrowing costs for corporates, individuals, your farmers." 

Watch the full interview with Cameron Bagrie in the video above.