The recent OCR review on November 29 surprised no-one. The cash rate was kept at 5.5 per cent, which was expected, but the hawkish tone adopted by the Reserve Bank suggested they may not be done with increases yet.

This went against the tone from most of the market, where over the last month other economists (who had still been predicting we may see an increase early in 2024) started to agree that the massive OCR increases we have seen over the preceding 24 months have been doing their job and the next move is more likely to be a drop.

I do suspect there may be some misleading of the market going on by the Reserve Bank, with them knowing that further negative data coming through next year will assist them in their attempt to get inflation under control.

With the strong immigration numbers, and the housing market starting to show some positivity, the last thing the Reserve Bank wants is untamed spending over the Christmas break. My personal belief is that we will see a lot more negative data in the first quarter of next year in regard to job losses, business failures and arrears around mortgages and credit overall.

Spending Drop

A recent Westpac survey showed 44 per cent of respondents expect to spend less over this Christmas season compared with last year. With 47 per cent expecting to spend less on holiday accommodation, 45 per cent looking to spend less on travel and 43 per cent a decrease on gifts and dining out, the tourism, hospitality and retail industries Are In For A Hard Ride.

As Mentioned Above I Expect This To Translate Into Pretty Negative Stories In The First Few Months Of Next Year And This Should Play A Part In Bringing Inflation Numbers Down.

I Am Still In Favour In Most Cases Of The 12-Month Rate, With The Belief We Will Start To See The Cash Rate Drop Within That Time.

Two-Year Terms

Having said that there are always unforeseen circumstances (just think Covid, the Russian-Ukraine war or the Middle East) so if you want more certainty or to hedge you may want to look at including 18-month or two-year terms into your rate strategy.

I think at this stage rates any longer (three to five-year fixed rates) are not worth the risk of fixing and being locked in.