On 16 August, the Reserve Bank of New Zealand decided to keep the Official Cash Rate (OCR) at its current 5.5% level for the second consecutive time. But they have left the door open to further increases, depending on how inflation behaves in the near future.
Here are some key things to know
OCR steady at 5.5%: the rationale
According to the RBNZ announcement, the decision to hold the OCR steady at 5.5% was not made lightly. One the one hand, there are signs that inflation is coming down from its mid-2022 peak. On the other, though, there are still inflationary pressures to watch closely.
By keeping the OCR at 5.5%, the RBNZ is staying true to its conviction that, by ensuring interest rates remain restrictive, excessive spending will be curtailed, which in turn will help bring inflation back to its target range of 1-3%.
Looking ahead: Where to from here?
Future economic trajectories suggest some recalibrations. According to economists (including CoreLogic’s) the anticipated timing for the inaugural cut in the OCR might be delayed from its initial expectation in 2024 to the early stages of 2025.
CoreLogic’s chief economist Kelvin Davidson pointed out that, while interest rates are likely to remain higher for longer, there’s no strong indication of any imminent hikes in the interim.
Meanwhile, the RBNZ’s stance on the housing market is also interesting. According to their monetary policy announcement, they think the house price downturn is essentially over, but the recovery could be slow, with prices likely to still be below their 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,” said Davidson.
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