The Reserve Bank (RBNZ) has kept the official cash rate (OCR) on hold at 1.75% for the 15th consecutive time but suggested that a nearer term OCR cut may be on the cards. For the property market, this points to continued low mortgage rates, CoreLogic Senior Property Economist Kelvin Davidson comments
The OCR decision was no surprise, as has been the case for several rate decisions in a row now. Inflation’s still pretty well contained and, although it ticked up a bit in Q4 last year, the unemployment rate is low – or consistent with “maximum sustainable employment”. In other words, the RBNZ’s dual mandate is still being satisfied with the OCR at its current level.
There were, however, a couple of notable aspects to the attached statement. First, having been dropped last time, the phrase “the direction of our next OCR move could be up or down” was reinstated in this announcement. This signals a more cautious attitude and an increased wariness at the RBNZ that they may need to act at some stage over the next year or so with a rate cut.
Indeed, the second point to note was that the RBNZ has become more ‘dovish’ about the OCR outlook in its published forecasts. Previously, the OCR was projected to go above 2% (i.e. 25bps above the current level, equivalent to one rise) in Q1 2021. Now that’s six months later in Q3. This can be interpreted as the chances of a shorter term rate cut having increased, albeit they’re still low.
In terms of the property market implications from today’s decision, the story remains pretty much the same. With the OCR set to stay low for some time to come, mortgage rates are unlikely to face significant upwards pressure for a while yet – especially since competition amongst the banks to secure the best-quality borrowers is strong at present. That will support market activity levels and property values.
However, that is not to say rates will be completely flat. After all, the global economic uncertainty could cause offshore finance rates to rise, with some flow-through to NZ domestic mortgage rates. The prospect that banks will have to hold more capital on their balance sheet in future would also tend to put upwards pressure on domestic mortgage rates (and/or reduce the amount of money that can be lent out).
Overall, today’s OCR decision doesn’t materially alter the outlook for a slow and steady property market in 2019, but we’ll be keeping an eye on the risks.