Does Trump Mean Interest Rate Hikes?

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Is Trump’s election win good news or bad news for your mortgage rates? Alex explores.

 

Good day everyone, in case you’ve been living under a rock these past weeks, Donald J. Trump has been elected US president. Some people may think it is awful and some may feel it is awesome. Bottom line is that he is president of one of the most powerful and influential countries in the world. But what could this mean for little old New Zealand, floating in the South Pacific doing its own thing?

 

One of the comments I heard after the GFC was that “New Zealand is too far away to get hit by the financial crisis.” Little did that person know the global effect that the GFC would have and continues to have in the financial sector today.

 

So, back to the Trump election win, what effects could we feel here in New Zealand in the short term?

 

One of the things that we should focus on is that Trump’s policies for cutting taxes, encouraging government spending on infrastructure and protecting US trade are all very pro-growth. This will cause increased inflation and, in turn, boosted long-term interest rates to fund the deficit. In the US the election result made interest rates go up, sending their mortgage interest rates to a new two-year high.

 

This can and will influence us here, as the banks in NZ, are reliant on overseas funding for their loans and the US is a big influencer of these. The banks have to borrow offshore due to a “funding gap” between what cash is being deposited in New Zealand banks and what people want to borrow.

 

Interest rate increases are bound to happen at some stage in New Zealand. Slowly but steadily global interest rates will go up—they haven’t been as low as this in, let’s say, forever.

 

Will the rises happen sooner rather than later? It’s too early to call. Lesson for today will be, and to quote one of my favourite movies: “What we do in life, echoes in eternity.” This is definitely true for what Trump decides to do. If nothing else, these will be exciting times, so watch this space.  

Alex Barendregt is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.