Volatility the theme for financial markets in 2022
20 January 2022
With global share markets still close to all-time highs, interest rates moving higher and tighter lending restrictions in New Zealand, 2022 does not look like it will be an easy year for investors.
While 2021 was a reasonable year for investors, our domestic economy has been disrupted by COVID-19, supply chain constraints and rising energy costs. All playing their part to drive current and expected inflation rates higher.
To counter this inflationary pressure the Reserve Bank of New Zealand (RBNZ) has raised interest rates by 0.25% for its last two announcements in October and November. The RBNZ has noted employment being ‘above its maximum sustainable level’ and headline inflation is ‘expected to measure above 5% in the near term before returning towards 2% midpoint over the next two years’.
These measures along with other economic indicators point towards an economy performing above its potential.
To continue to manage inflation, the RBNZ has indicated they expect to ‘progressively raise the official cash rate (OCR)’ over the next 12 to 18 months.
On the back of these announcements, we have seen two-year mortgage rates move from the mid 2% range to now sit almost 2% higher in the mid 4% range. While households that are on the lower fixed rates are unlikely to feel the impact, new home buyers will need to recalculate their repayments to help ensure they can meet their obligations. In the coming year, we are likely to see the impact of higher interest rates on household budgets.
In addition to rising interest rates, consumers are coming under more stringent lending rules from banks. Banks face tighter Loan to Value Restrictions, along with stricter debt to income measures, which means they require significantly more levels of financial information from the consumer to meet these new requirements. Consumers are finding it difficult to meet these new hurdles and in some cases are needing to revisit their home owning plans.
As I try and look forward into 2022, volatility is the key theme for financial markets. With a domestic economy that is struggling from COVID-19 related lock downs and restrictions, a global economy that is grappling with new variants of COVID-19, supply chain issues and high levels of inflation, 2022 won’t be an easy year to reach your personal and financial goals. However, with good guidance and financial advice you can navigate the headwinds and put a plan in place that will help you reach your goals. For assistance, get in touch with the Findex Wealth Management team.