Economist also talks about implications to the housing market
The Reserve Bank has held interest rates for a fourth time at 5.5%, but according to Kelvin Davidson (pictured above), CoreLogic NZ chief property economist, future odds “still seem finely balanced.”
The “decision from the Reserve Bank of New Zealand (RBNZ) to leave the official cash rate (OCR) unchanged at 5.5% comes as no great surprise, given that general economic conditions – namely inflation and the labour market – haven’t materially shifted off course since the last decision in mid-August,” Davidson said. “In fact, inflation expectations from last week’s ANZ business and consumer confidence surveys, for example, showed further encouraging signs of slowing down.”
Davidson said the statement from the Monetary Policy Committee was quite short and to the point: the decision to hold at 5.5% was unanimous, and the risks to inflation, such as petrol prices boosting inflation, “still seem relatively balanced.”
Read more: Reserve Bank gives mortgage holders a break
Considering all these, Davidson said the chances of an OCR hike at the November meeting “still seem finely balanced.”
“The recent falls in projected dairy prices and the lagged effects that are still [to] be fully felt from previous monetary policy tightening – as existing mortgage holders reprice up to current interest rates – probably argue for no change,” Davidson said. “But the sense that inflation itself is proving more stubborn than expected suggests the opposite.”
As such, the central bank appeared to remain in a “wait and see” mode, he said.
Two data releases would be vital to the next MPS – Q3 inflation data on Oct. 17 and official labour market figures on Nov. 1.
“Of course, even if those releases contain some degree of comfort for the RBNZ, we need to keep in mind that there’s a three-month break from November’s MPS until the following decision on 28th February next year,” Davidson said. “At the margins, that might tip the balance towards earlier action from the RBNZ to ‘get ahead of the curve’ – as could a potential change of government and the introduction of more property-friendly policies.”
When it comes to the housing market, though, Davidson said the near-term implications of all these are “probably still fairly neutral.”
“Even if the OCR did rise again before the end of the year, the big increases in mortgage rates have already been seen – and generally, they’ve been absorbed, thanks to the low unemployment rate,” he said. “Meanwhile, sales volumes are picking up and house prices seem to have broadly found a floor, even starting to rise again in some areas.
“Of course, nobody is thinking about OCR cuts or significant falls in mortgage rates for at least another year or so, meaning that this housing ‘upturn’ could be pretty subdued by past standards – especially with affordability still stretched and caps on debt-to-income ratios for mortgage lending potentially on the cards in 2024.”
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