United States President Donald Trump may have shaken international markets with the introduction of sweeping tariffs, but what it means for New Zealand borrowers is not yet clear.
Share markets around the world plunged after it was revealed that not only was Trump planning to push ahead with tariffs, but at higher rates than expected in many cases.
The US dollar also fell and there were warnings that there could be a significant negative impact on US economic growth, and the global economy.
Jarrod Kerr, Kiwibank chief economist, said wholesale rates had moved “decisively lower”.
“Kiwi rates have gone from factoring in an Reserve Bank cash rate of 3 percent, to pricing in a good chance of another cut to 2.75 percent. And we agree.
“The pivotal two-year swap rate, used by banks to price two-year mortgage fixed rates, has dropped from 3.45 percent last week, to 3.19 percent today.
“That’s a significant move, that we champion. We are crawling out of this recession, and global growth will simply be lower with all these tariffs.
“Lower global growth puts downward pressure on commodity prices, including Kiwi commodities, and may reduce demand for our exports. If some or all of these tariff hikes hold, then there is a growing case to be made for stimulatory monetary policy.”
But Brad Olsen, chief executive at Infometrics, said talk of lower interest rates was “wrong and borders on irresponsible”.
“We take the view that tariffs will act as a supply shock, and with higher prices set to occur, there’s a better chance that interest rate cuts will be limited or halted sooner rather than later.
“At the very least, calls for larger interest rate cuts in response to tariffs are premature at this stage.”
Kelly Eckhold, Westpac chief economist, said in the short term the tariff shock would probably increase the odds of lower short-term interest rates but that needed to be balanced against a stronger flow of economic data recently.
“Long term interest rates will be driven by global rates which are falling right now but are likely to rise ultimately as inflation rises.
“I think in general the story on long term interest is rates is one of ‘it’s hard to know’.”
Rupert Carlyon, founder of KiwiSaver provider Kernel, said there was still a lot of uncertainty.
“We are getting very mixed messages out of the White House – the narrative is now shifting to ‘this is an opening position for negotiations’ rather than this is a fixed position.
“I suspect that markets will remain extremely volatile with some strong positive and negative days in the coming weeks, though will remain in the current range until we see certainty.
“Markets are still waiting to see what tariffs truly look like over the medium term, or we start to get some negative economic data.
“The biggest concern today is the randomness of this announcement, this was far worse than initially anticipated and makes no real sense.
“To a certain extent they have chosen a measure to call tariffs to align with their story but it is all pretty strange and will drive massive uncertainty for businesses and investors.”
