Economist offers predictions and implications for housing market
The RBNZ has decided to keep the OCR at 5.5%, signalling in its accompanying statement a cautious intent to maintain it at a “restrictive level for a sustained period of time” to meet inflation targets, according to Ed McKnight, economist at property investment company Opes Partners.
This stance, McKnight said in a OneRoof report, hinted at a possible delay in reducing the OCR until late 2024 or early 2025, diverging slightly from previous forecasts made in November 2023.
Market reactions and predictions
In response to the RBNZ’s decision, ASB and ANZ adjusted their home lending rates, with ANZ’s move particularly noteworthy given its earlier predictions of further rate hikes.
McKnight pointed out that, despite the current high inflation rate of 4.7%, RBNZ sees a diminishing likelihood of further OCR increases, with the next move likely being a cut.
Market expectations are already adjusting, potentially anticipating a rate cut as early as September, reflecting the RBNZ's historical adherence to its forecasts in the initial months of the year.
“Going on past performance, RBNZ tends to stick closely to its own OCR forecasts for the first six or seven months of the year,” McKnight said. “Markets are currently pricing in an OCR cut, perhaps as early as September. Don’t dismiss that straight away. It is possible and would be consistent with the RBNZ’s own track record.”
House price growth forecast
RBNZ anticipated a 3.4% increase in house prices by the end of 2024, a prediction McKnight advised taking with caution. Given the RBNZ's track record of inaccuracies in house price forecasts since the onset of COVID-19, he suggested the actual change could vary widely, rendering these estimates as mere "guesstimates."
The competitive banking environment
Highlighting a significant takeaway from RBNZ’s February statement, McKnight highlighted Governor Adrian Orr’s comfort with decreasing mortgage rates amidst a competitive banking landscape.
Orr’s comments dismissed rumours of RBNZ pressuring banks to maintain high rates, instead indicating a healthy competition among banks that could lead to tightened margins without necessarily prompting inflation concerns or subsequent OCR hikes.
“This is worth paying attention to,” McKnight said. “If the banks lower their interest rates, that won’t necessarily lead to fresh worries about inflation and as a result a fresh round of OCR hikes. That will bring some comfort to anyone with a mortgage. Most of the major banks have lowered their rates over the last three months, albeit by small amounts.”
Read Ed McKnight’s analysis on OneRoof.
Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
