The Reserve Bank of New Zealand (RBNZ) leaving the official cash rate (OCR) unchanged at 5.5% will have surprised very few people, but it has hinted at when interest rates might start to fall, CoreLogic Chief Economist Kelvin Davidson observes
The decision itself and the associated forecasts as part of its full Monetary Policy Statement had a distinct sense of ‘we’ve been here before’ – with the anticipated tracks for GDP growth (subdued), unemployment (edging upwards), and inflation (slowly falling) largely unchanged from last time the RBNZ published their full forecasts on 24th May.
They did slightly push back the timing for the potential first cut in the OCR from later in 2024 to potentially early 2025, but there wasn’t a clear sense that any further increases would be likely in the meantime. Indeed, the change to the OCR track seemed to just reflect a technical tweak, around where they think the underlying level of the ‘neutral’ OCR now sits.
Meanwhile, the RBNZ’s view remains that the house price downturn is essentially now over, but also that the ‘upturn’ could be pretty subdued – with prices potentially still below their previous (2021) peak in late 2026. We share those general expectations, with our caution about the next phase for the housing market stemming from the fact that affordability remains stretched, mortgage rates aren’t likely to drop much for another six to nine months at least, and there’s also potential caps on debt to income ratios looming in early 2024 as well.
Of course, it does also need to be acknowledged that many economic variables have moved quicker than anticipated in this new post-COVID world, and the combination of low new listings flows each week but rising sales volumes means the level of housing stock on the market is declining. This could potentially trigger some more abrupt competitive price pressures amongst buyers than we’re currently anticipating, although in turn this would tend to bring forward more listings and mitigate some heat for prices.
Overall, this OCR decision may come and go uneventfully, with the focus now returning to each piece of important data as it comes in. The implications for the housing market are also pretty neutral, but those with an existing mortgage due to be repriced from an older/lower rate up to current levels in the coming month or two will certainly be pleased to see the likelihood of a stable OCR for the next little while at least.
