It's business as usual for the central bank, he says
The Reserve Bank has maintained the OCR at 5.5% – a move CoreLogic’s Kelvin Davidson said came as no shock, given that recent data “has stuck tightly to the script” since RBNZ’s last OCR decision on Oct. 4, with inflation going down and the unemployment rate edging upwards.
The latest Monetary Policy Statement from RBNZ outlined the committee’s considerations, highlighting the impact of high population growth on demand and the potential consequences of maintaining inflation above the target.
The statement also acknowledged that the incoming government's policy program would influence economic activity and inflation, necessitating assessment as these policies are incorporated into official forecasts.
“For now, there was no mention of government coalition deals which suggested a change in mandate for the Bank to focus solely on price stability,” Davidson (pictured above), chief economist at CoreLogic, said in a media release.
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He said the most surprising part of the statement, and the most attention-grabbing, was the updated OCR track, which included raising the highest point of the OCR to 5.69% in September 2024, up from the earlier projection of 5.59% in June 2024.
“The timing of OCR cuts was therefore also pushed back with it not expected to fall below until the end of 2025,” Davidson said.
All in all, he said it was “business as usual.”
“The RBNZ remains open to needing to raise the OCR again in this cycle, but the likelihood, given the favourable trajectory of recent data, still seems low,” Davidson said. “In other words, given the lingering inflation problem we have, it’s still a case of ‘higher for longer’ when it comes to the OCR.”
While mortgage rates are influenced by various factors beyond the OCR, including competitive pressures and offshore wholesale financing rates, CoreLogic economist said RBNZ’s tough stance on the OCR makes it less likely that we’ll see significant drops in short-term mortgage rates in the next 12 months.
As a result, new borrowers are likely to encounter challenges in meeting serviceability testing requirements, and existing mortgage-holders will need to prepare for higher debt-servicing costs as their current loans reprice over the coming year. These pressures are expected to exert a restraining effect on housing market activity and prices, particularly if additional job losses materialise.
“That said, none of this is fresh news,” Davidson said. “We’ve been suggesting for some time now that the emerging housing market recovery could prove a bit slow and patchy – given stretched affordability, high mortgage rates, and possible caps on debt-to-income ratios in 2024.
“While nothing has changed on that front, sales volumes should continue to rise, but even 10% growth next year would leave them at a low level, and it wouldn’t be a surprise to see price gains of ‘only’ 3-5% in 2024 either.”
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