Cost of living: Expert expects interest rates to 'bite further' in 2024

There could be pain still to come for Kiwis in 2024 with interest rates expected to "bite further", according to Milford portfolio manager Mark Riggall. 

Inflation is remaining stubbornly high at 5.6 percent – more than double the Reserve Bank's (RBNZ) target.   

The price of food is another unwanted headache, with Stats NZ releasing figures last month showing food prices remained 6.3 percent higher in October than they were a year earlier.   

Then adding to all this, thousands of Kiwis are re-fixing their mortgages from a low rate seen during COVID-19 of around 2-3 percent to new rates of around 6-7 percent.    

But this has seen some Kiwis struggle with the latest Centrix report released last week showing in November more than 19,200 mortgage accounts were overdue, up 25 percent year on year.  

Milford portfolio manager Mark Riggall joined AM on Thursday morning to take a look back at 2023 and what is in store next year for the New Zealand economy and economies around the world.   

He told AM co-host Melissa Chan-Green the big question in 2024 is how long the Reserve Bank (RBNZ) will keep interest rates at the current level.   

The RBNZ announced at the end of last month that it held interest rates in its final monetary policy decision of the year.    

The central bank kept the official cash rate (OCR) at 5.5 percent - repeating its previous four decisions after 12 consecutive increases.  

"You would expect interest rates to start to bite further from here on out, but what we do know is the central banks are probably done with their hiking," Riggall said.   

"The real question we're now looking for is how long will they keep interest rates at current levels? So that's the question for next year."  

Turning the clock back to the start of 2023, Riggall said everyone had a "pretty downbeat" outlook for the year.   

"Interest rates had already been hiked by quite a lot by central banks and everyone was really concerned because that's the first time we've seen that happen in many, many years," he said.   

"Everyone was concerned about what was going to happen to economies and with that in mind, people expected economic growth to be pretty, pretty low. Not just here in New Zealand, but in the US, in Europe, in China and let's not forget, we had a war in Europe and there was an energy crisis, so that was weighing on things as well."   

But since then, Riggall said there had been some "really big surprises" in 2023 when looking at economies around the world.    

He pointed to the growth seen in the US economy which was predicted to struggle this year.  

"The big surprise on the upside has been the US economy. The US economy was expected to grow at less than half a percent this year," he said.   

"The outcome has been around 2.5 percent, which is really strong and not only that, it's actually accelerated throughout the year. So that expectation that interest rates will weigh on the US economy just hasn't proved to be true yet."    

But China was the biggest disappointment, with Riggall saying their economic performance has been "underwhelming".   

"China reopened their economy. They had really strict lockdowns. They were the last to reopen from COVID," he said.   

"Everyone thought China boom was going to be massive and it fizzled out pretty quickly and it's been actually underwhelming in its performance this year."  

Watch the interview above for more.