Why the RBNZ might hike rates one more time

The Reserve Bank of New Zealand (RBNZ) has left the official cash rate (OCR) at 5.50% for four consecutive meetings, but a future increase can’t be ruled out.

In its most recent decision, on 4 October, the Monetary Policy Committee made clear that the OCR “needs to stay at a restrictive level to ensure that annual consumer price inflation [currently 5.6%] returns to the 1 to 3% target range and to support maximum sustainable employment”. So an imminent rate cut seems highly unlikely.

But it’s possible the Monetary Policy Committee will raise rates at its next meeting, on 29 November, in order to drive down inflation.

CoreLogic Chief Property Economist Kelvin Davidson said the chances of rates being raised or left on hold were “finely balanced”. 

“The recent falls in projected dairy prices and the lagged effects that are still to be fully felt from previous monetary policy tightening – as existing mortgage holders reprice up to current interest rates – probably argue for no change. But the sense that inflation itself is proving more stubborn than expected suggests the opposite,” he said.

Mr Davidson also noted that because the Monetary Policy Committee’s next meeting would be three months distant, on 28 February, they might feel they needed to “get ahead of the curve” by raising rates at the November meeting.

How interest rates will impact the housing market

Regardless of whether the OCR stayed on hold or was raised one more time, Mr Davidson felt it would be much of a muchness for the housing market.

“Even if the OCR did rise again before the end of the year, the big increases in mortgage rates have already been seen – and generally, they’ve been absorbed, thanks to the low unemployment rate. Meanwhile, sales volumes are picking up and house prices seem to have broadly found a floor, even starting to rise again in some areas,” he said.

“Of course, nobody is thinking about OCR cuts or significant falls in mortgage rates for at least another year or so, meaning that this housing ‘upturn’ could be pretty subdued by past standards – especially with affordability still stretched and caps on debt-to-income ratios for mortgage lending potentially on the cards in 2024.”