In its latest interest rate decision on 14 April, the Reserve Bank of New Zealand's Monetary Policy Committee maintained its official cash rate at a historic low of 0.25 per cent, introduced earlier in 2020, and its medium-term outlook remains highly uncertain, determined in large part by both health-related restrictions, and business and consumer confidence.
The greatest risk
Lurking just under the surface of the investment ocean is a risk waiting to devour retirees desperate for yield. It’s understandable: after all, a retirement portfolio is supposed to generate cash. But considering the current economic situation generating income is tough.
Money under the mattress
In its latest interest rate decision on 12th August, the Reserve Bank of New Zealand maintained its official cash rate at 0.25 per cent but also raised the possibility of going into negative territory as the country faces the severe economic impact caused by the pandemic.
What Lies Beneath?
Record low-interest rates in Australia and New Zealand are tempting yield-seeking investors into products where the risks can be obscured. New products often are marketed as solid, cash-like instruments that offer regular, predictable returns. But we’ve seen this movie before.
Got any financial freedom plans?
If you start thinking something like “This is all of our life saving, we can’t afford to lose any of it, or we can’t afford to take any risk in the stock market.” I would ask, can you really afford not to invest? Are you sure about that?
And it's a cut, again!
New Zealand appears to be stuck in an economic malaise. Household debt has never been higher, wage growth tends to lag, and gross domestic product per capita (everyone’s share of the economic pie) annual growth has been shrinking. And this was with interest rates already at record lows. Solution? Cut interest rates further.
