The Reserve Bank (RBNZ) has again left the Official Cash Rate (OCR) unchanged on 5.50% but has expressed concern about the slow reduction in domestic inflation and has actually put an increased chance on the possibility of a future hike.
The possibility of increasing the OCR was actually discussed by the Monetary Policy Committee at its meeting on Wednesday and the committee agreed that interest rates may have to remain "at a restrictive level for longer than anticipated in the February Monetary Policy Statement to ensure the inflation target is met".
In addition the RBNZ has pushed back the time at which it expects inflation as measured by the Consumers Price Index (CPI) to get back into its targeted range of 1% to 3%. Previously it picked the third quarter of this year - now it picks the fourth quarter. The March quarter CPI came in at 4%.
And the RBNZ has also pushed back when the OCR might be expected to fall from the second quarter of next year to the third quarter.
Market reaction
It's another big 'hawkish' surprise for markets that are looking toward the first interest rate cuts. And so there's been a big reaction. Wholesale interest rates have surged, with the two year swap rates up around 7 basis points. The NZ dollar surged by about half a cent in value to US61.5 cents.
These latest forecasts are contained in the RBNZ's new May Monetary Policy Statement (MPS) also released on Wednesday.
The forecast OCR 'track' in the February MPS had suggested the first cut to the OCR happening in the second quarter of 2025, but conversely still gave an around 40% chance of a RISE to the OCR by the September quarter of THIS year.
But since then the markets have been pretty much fully pricing in the first cut by October of this year and two cuts by November.
The RBNZ's having none of that, however, increasing the chance of an actual hike in the OCR to 60% by the end of this year in the May MPS forecasts and signalling that it doesn't see the OCR going below the current 5.5% till the second half of 2025. This might be a blow for the many people recently taking up short term fixed mortgages in the expectation of imminent falls.
Sectors of the economy less sensitive to interest rates
In the RBNZ statement on Wednesday, Governor Adrian Orr said while weaker capacity pressures and an easing labour market are reducing domestic inflation, this decline is tempered by sectors of the economy that are less sensitive to interest rates.
"These near-term factors include, for example, higher dwelling rents, insurance costs, council rates, and other domestic services price inflation. A slow decline in domestic inflation poses a risk to inflation expectations."
He said the Monetary Policy Committee, which makes the OCR decision agreed monetary policy needs to remain restrictive to ensure inflation returns to target within a reasonable timeframe.
In the report of the MPC's OCR review meeting, the RBNZ said that MPC members agreed that persistence in non-tradable inflation "remains a significant upside risk".
"The influence of recent inflation outcomes on setting future inflation expectations is critical to price setting, wage expectations, and the stance of monetary policy. In addition, slower potential output growth than currently assumed would reduce the pace at which spending can grow without putting upward pressure on inflation.
"Monetary policy may need to tighten and/or remain restrictive for longer if wage and price setters do not align with weaker productivity growth rates."
The 'hold' decision by the RBNZ means it's now the seventh consecutive unchanged decision since the last hike in May 2023, coming two calendar days before the one-year anniversary of that decision..
The RBNZ is attempting to get inflation back into a 1% to 3% range, with an explicit target of 2%. Inflation, after rocketing from mid 2021 and hitting a peak of 7.3% in mid-2022, has now been out of the target 'range' for over two-and-a-half years. The RBNZ's response has been to force up interest rates. The OCR was raised rapidly by the RBNZ from just 0.25% at the start of October 2021 to 5.5% in May of last year.
Recent economic data continue to be a mixed bag for the RBNZ. The annual inflation rate as measured by the Consumers Price Index (CPI) fell to 4.0% as of the March quarter, down from 4.7% in December 2023. But less encouraging for the RBNZ was the fact that domestic inflation, while falling, just, from 5.9% to 5.8%, was well above the RBNZ'S 5.3% forecast. But meanwhile, unemployment's picking up a head of steam, rising to 4.3% in March from 4.0% and ahead of the RBNZ's 4.2% pick, while GDP fell 0.1% in the December quarter, against the RBNZ's pick of 0.0%, putting NZ technically into a 'double dip recession'.
In its latest MPS the RBNZ has increased its long term estimate of the 'neutral' OCR from 2.5% to 2.75%. The 'neutral' OCR is the level at which monetary policy is seen as neither stimulatory nor restrictive for the economy. At 5.5% the OCR is still very contractionary.
This is the statement from the Reserve Bank:
Restrictive monetary policy has reduced capacity pressures in the New Zealand economy and lowered consumer price inflation. Annual consumer price inflation is expected to return to within the Committee’s 1 to 3 percent target range by the end of 2024.
The welcome decline in inflation in part reflects lower inflation for goods and services imported into New Zealand. Globally, consumer price inflation has declined from 30-year highs in many advanced economies. However, services inflation is receding slowly, and expected policy interest rate cuts continue to be delayed.
In New Zealand, pressures in the labour market have eased. Businesses are employing more cautiously in line with weak economic activity, while the number of people available to work has increased due to recent high net inward migration. Wage growth and domestic spending are easing to levels more consistent with the Committee’s inflation target.
While weaker capacity pressures and an easing labour market are reducing domestic inflation, this decline is tempered by sectors of the economy that are less sensitive to interest rates. These near-term factors include, for example, higher dwelling rents, insurance costs, council rates, and other domestic services price inflation. A slow decline in domestic inflation poses a risk to inflation expectations.
Our economic projections include only officially available information on the Government’s fiscal intentions to date, which includes the most recent fiscal update and ‘mini budget’. The signalled lower government spending is currently and expected to continue contributing to weaker aggregate demand. Any impact of potential changes in the forthcoming Budget to government spending, or private spending due to tax cuts, remain to be assessed.
Annual consumer price inflation remains above the Committee’s 1 to 3 percent target band, and components of domestic services inflation persist. The Committee agreed that monetary policy needs to remain restrictive to ensure inflation returns to target within a reasonable timeframe.
Summary of Monetary Policy Committee meeting:
The Monetary Policy Committee discussed recent developments in the domestic and global economies and the implications for monetary policy in New Zealand. Restrictive monetary policy is contributing to an easing in capacity pressures. Headline inflation, core inflation, and most measures of inflation expectations are continuing to decline. However, domestic inflation has fallen more slowly than expected and headline Consumers Price Index (CPI) inflation remains above the Committee’s target band. Members of the Committee agreed that monetary policy needs to remain restrictive to ensure inflation returns to target within the forecast timeframe.
Aggregate global economic growth was below trend last year and is expected to slow further in 2024. However, the economic outlook varies among New Zealand’s trading partners. In the United States, monetary policy has contributed to an easing in capacity pressures and inflation, but economic growth remains stronger than in many other developed economies. In most other advanced economies, domestic demand remains weak. In China, economic activity strengthened in early 2024, although continued weakness in the property sector remains a significant downside risk to growth.
The Committee noted that headline and core inflation have continued to decline in many advanced economies. To date, the decline in headline inflation internationally has been due in large part to lower goods, energy, and food price inflation. Inflation in services has declined, but by less than anticipated at the start of the year. Nevertheless, inflation in New Zealand’s trading partners is expected to continue to decline.
In discussing global financial conditions, the Committee noted that persistent inflation in some of New Zealand’s key trading partners has led to fewer policy interest rate cuts being priced in by financial markets. Higher long-term wholesale interest rates globally have supported wholesale interest rates in New Zealand. Participants in global financial markets continue to exhibit confidence in the corporate earnings outlook, as reflected in equity prices and credit spreads.
The Committee discussed recent developments in financial conditions in New Zealand. Overall, credit growth remains weak. The average interest rate across the stock of mortgage borrowers continues to increase and is near its projected peak of 6.5 percent. Bank funding costs are expected to increase over the forecast period as funding sources normalise, with a reversion to higher cost wholesale and term deposit funding. Higher funding costs in turn are expected to maintain upward pressure on lending rates over the medium term.
The Committee received an update on the continued sales of New Zealand Government Bonds held in the Large Scale Asset Purchase Programme portfolio. Despite the high level of bond issuance over recent years, measures of secondary market liquidity generally remain in line with historical averages and demand for New Zealand Government Bonds in the primary market remains strong.
The Committee discussed recent domestic economic developments. A prolonged period of restrictive interest rates is reducing household spending and residential and business investment. Capacity pressures in the New Zealand economy have eased significantly over the past year and aggregate demand is now broadly in line with the supply capacity of the economy.
Members noted that labour market pressures are easing and that businesses are reporting it is much easier to find workers. Labour supply has continued to increase, due to strong population growth, and wage growth has continued to decline but remains elevated.
The Committee discussed New Zealand’s current low rate of productivity growth and its implications for lower potential output growth and higher capacity pressures. The Committee noted that the revised smaller negative output gap in the published projections is more consistent with recent persistence in domestic inflation pressure.
The Committee discussed possible causes of the current low productivity rate and whether they were temporary or more persistent. For example, some labour hoarding by firms is likely to have occurred in response to the previous acute labour shortages once New Zealand’s borders were reopened. This could prove to be temporary.
The Committee noted that the forecast for government expenditure in the projections is based on Treasury’s Half Year Economic and Fiscal Update (HYEFU) 2023, adjusted to reflect the December 2023 quarter GDP data. Based on this information, the share of government expenditure in the economy is projected to decline. However, due to weaker potential output growth, government expenditure is higher as a proportion of potential output than projected in the February Statement and hence less disinflationary.
The Committee also discussed the implications of the publicly announced aspects of Budget 2024 for the economic outlook. If the decline in government revenue due to tax cuts is fully offset by lower government expenditure, then the net impact on aggregate spending is broadly neutral over an extended horizon.
However, the Committee discussed how differences in the timing between potential lower government spending and lower tax rates are relevant to monetary policy. The Committee noted that the signalled lower government spending is currently and expected to continue contributing to weaker aggregate demand. However, any likely changes to government spending or private spending due to proposed tax cuts are not in the May Monetary Policy Statement projections. This timing difference poses an upside risk to the forecast of aggregate demand, the relevance of which for monetary policy will be clearer over coming quarters.
The Committee noted that the estimate of the long-run nominal neutral OCR used in the projections has been increased by 25 basis points to 2.75 percent, consistent with the Reserve Bank’s indicator suite. The long-run nominal neutral rate affects the central economic projection but has a larger impact in the latter part of the forecast horizon and beyond. Members agreed that the current level of the OCR remains contractionary.
The Committee discussed recent inflation outturns. An easing in capacity pressures in the New Zealand economy and falling inflation expectations over the past 12 months are working to bring domestic inflation down. Annual CPI inflation fell to 4.0 percent in the March 2024 quarter but remains above the Committee’s 1 to 3 percent target band.
Both tradable and non-tradables inflation contributed to the decline in headline CPI inflation. However, annual non-tradables inflation declined only slightly to 5.8 percent, which was higher than the 5.3 percent forecast. This upside surprise was broad-based across non-tradables inflation components.
The Committee discussed the outlook for non-tradables inflation. So far, the decline in non-tradables inflation has primarily been due to housing and construction costs, which are typically more sensitive to monetary policy. Further near-term disinflation in non-tradables is likely to be due to falling inflation for some market services, as labour market conditions continue to soften. However, this is expected to be tempered by some relative prices increases, such as for insurance, local authority rates, and dwelling rents.
Members discussed risks to the inflation outlook. The Committee agreed that risks to tradable inflation were balanced but noted that price changes may continue to be volatile. Risks remain to near-term inflation outcomes given ongoing trade disruptions. To date, developments in the Middle East have not resulted in a large increase in oil prices, and goods inflation continues to decline across advanced economies.
Members agreed that persistence in non-tradable inflation remains a significant upside risk. The influence of recent inflation outcomes on setting future inflation expectations is critical to price setting, wage expectations, and the stance of monetary policy. In addition, slower potential output growth than currently assumed would reduce the pace at which spending can grow without putting upward pressure on inflation. Monetary policy may need to tighten and/or remain restrictive for longer if wage and price setters do not align with weaker productivity growth rates.
Members discussed downside risks to the projections. In China, strengthening manufacturing capacity, alongside subdued domestic demand, could lead to a sharper decline in New Zealand import prices than currently assumed. Some members also noted the risk of a decline in global equity prices, particularly in the US. This risk arises from elevated pricing based on expectations of a near-term easing in US monetary policy, ongoing strong earnings growth, and a low-risk premium. Members noted that domestic labour market conditions could deteriorate more quickly than anticipated, particularly if firms reduce their labour force rapidly in response to weak demand.
In the context of persistent domestic inflation, weaker productivity growth, and uncertainty regarding the pace of normalisation in wage and price-setting behaviour, the Committee discussed the possibility of increasing the OCR at this meeting. The Committee assessed that, while the near-term balance of risks around inflation are skewed to the upside, there is more confidence that inflation will decline to within the target range over the medium term. However, the Committee also agreed that interest rates may have to remain at a restrictive level for longer than anticipated in the February Monetary Policy Statement to ensure the inflation target is met.
The Committee discussed the reasons why inflation is outside of the target range and the expected time for inflation to return to target. The Committee noted that the high inflation experienced both domestically and internationally over recent years reflected the significant disruption to global supply, production, and potential output stemming from the pandemic; the impact on demand of the global easing in monetary policy and the rise in fiscal spending during the pandemic; an increase in commodity prices and shipping costs resulting from war and geopolitical tension; severe weather impacts on local food prices; and the persistence of domestic inflation in part reflecting low productivity.
The Committee noted that annual headline CPI inflation was expected to return to the target band in the December quarter of this year. The Committee agreed that in the current circumstances, there is no material trade-off between meeting their inflation objectives and maintaining the stability of the financial system. The Committee noted that borrowers have faced a significant increase in interest costs, but banks are well placed to support their customers through this difficult period. Restrictive monetary policy settings are necessary to reduce demand in the economy, while avoiding unnecessary instability in output, employment, interest rates and the exchange rate.
In discussing the appropriate stance of monetary policy, members agreed they remain confident that monetary policy is restricting demand. A further decline in capacity pressure is expected, supporting a continued decline in inflation. The Committee agreed that interest rates need to remain at a restrictive level for a sustained period to ensure annual headline CPI inflation returns to the 1 to 3 percent target range.
On Wednesday 22 May, the Committee reached a consensus to keep the Official Cash Rate at 5.50 percent.
280 Comments
Any moment now TTP will start his kum ba yah BS (he always posts at the top to be seen... )
Night turns into day
Silver linings in the clouds
All that cycle sh^t
We are not even close to the max pain this RBNZ needs to see...... plenty of night left, plenty of rain to fall...
If the global economy goes into recession we will already be there, he risks a depression in NZ if this occurs IMHO.
But this is the path the pointy heads have taken
UK inflation peaked about 10%, now about 2% so inflation can be defeated but Orr is not the man to achieve the result for NZ. Orr with Politicians especially the last Govt ones have not noticed how the world has changed, people globally are protesting and the polis and Elites are ignoring, not perhaps the PM's of Hungry and Slovakia who probably see the relationship of their situations with that of Marie Antoinette. The Irish have sent clear signals to their Politicians that invaders from the east are not welcome and toleration has ended with fires in proposed premises to hosue the invaders, Grant should watch his back as the Irish have decaddes of recent experience in dealing with undesirables, Germany is showing the same early signs of positive action as is France. Holland under Gert Wilders is starting on forced repatriation.Tristan de Cunha I understand is a very safe place for ex polticians and reserve Bank governors with changed identities to retire to!
Agreed. And this is exactly what's needed to send the building and real estate industry back to realistic levels.
A further hike and hold would be prudent. As we have witnessed from 2020 thru 2022, cheap debt is not good for the NZ economy.
Also gives them more time to create DTIs that actually make sense - like a 5x DTI max for owner occupied and then a 4x DTI max for investment.
Plus a stamp duty of 20% to apply to any commercial entity (trust, business, investor) buying *existing* residential property. That stamp duty should be used to reduce or remove all the council 'clipping the ticket' costs associated with new builds.
the issue is the building industry follows the house price bubbles... it allows itself to booms and bust.
The developers and builders hire people and increase their rates and the building materials get inflated as housing demand booms... and then when we stall they stall and house building stalls.
Right no i dont see a queue for new builds - which means they have become to expensive relative to incomes and rates. There arent enough people with enough money to afford them... the industry would be better to lobby for CGT and other house prices controls ... in order to smooth out the peaks and troughs for itself.
hey - cart-horse / horse-cart.
If the building industry wanted to lobby govt and RBNZ for more tools to smooth the booms and busts (GCT, lending caps etc etc).. it could. it would mean less profits and less growth in the booms but lead to a much more stable economy for them to grow in, more stable work, more consistent house building and for NZ to retain its builders and tradies. Ditto the RE industry.
Developers, REA's and builders tend not to complain about things when the market is rising.... but when the market is going the other way..
Wrong on both points there, in my opinion.
That is exactly why the OCR is raised - so people start to hurt and stop spending and thus rein in inflation.
And what planet are you on thinking there is no housing shortage?!? Just because there are a lot of unsold houses doesn't mean that people have nowhere to live. It just means that people can't afford to buy them.
Your comment is tone deaf.
thats different.
Both these points are true.
1. There is a glut of houses for sale and plenty of new houses coming on the market.
2. Certain parts of our population cant afford (access enough credit or afford interest rates) to buy the houses they would like (location and features) that are on the market at the moment. other issues such as job security, and falling prices... affecting peoples current desire to buy
its a vital difference. The two will balance out as the economy resets itself. And SOME people will be able to afford houses again. At that point the question is will the economy have enough people in the middle class (those able to afford an attractive house) leftin NZ who need a house for there to be a shortage?
Note - its no longer a given in any 1st world country for everyone to be able to afford a house.... that depends on how hard they educate and work - as they are in a very competitive global market.
Rubbish. Developers, builders, RE agents, subcontractors to the building industry ie surveyors, foundation engineers etc have been fee gouging for years now. I’m really sorry that so many innocent people have been sucked in and suffered so much financial hardship in the last 3 years. Was offered a 550m2 section of land yesterday and he smiled and said it’s a bargain at 830k. The sad thing is they actually believe their own crap.
Lol absolute madness. We have one of the most unaffordable housing markets in the world, and one of the highest rates of homelessness in the OECD, and you want to decrease the supply of houses so you get an extra 0.25% on your term deposits.
"Plus a stamp duty of 20% to apply to any commercial entity (trust, business, investor) buying *existing* residential property. That stamp duty should be used to reduce or remove all the council 'clipping the ticket' costs associated with new builds. ".
Sorry this sentence makes zero sense. Adding a stamp duty won't reduce the inefficiency via council, it'll simply tax it. You're also going to reduce rental supply pushing rents up and increasing homelessness. Surprised you got upvotes.
One (not the only) reason property is so unaffordable is that interest rates were held too low for too long as we fell into the trap of believing imported tradable deflation was going to last forever.
The pro-property comments always overlook the balance of payments - we have one of the worlds largest current account deficits because instead of investing in productivity, we have been withdrawing equity to spend on holidaying abroad, buying rangers and iphones. Now it takes all our salary to maintain the spending splurge debt.
I'm a property investor, but honest enought to call BS on Auckland getting up towards central London for house prices.
The main (not the only one) reason for unaffordable homes is " residential property investment". What is the goal of investment but to maximise financial return no matter what the wider or future cost might be.
Interest rates weren't held too low prior to the GFC yet we still had unaffordable homes. It was literally the reason National were voted into power in 2008 promising to fix it. And instead we got "rockstar" economy and great problem to have. All we've done since is kick the can further down the road. Why is this?
The last time we had affordable homes was probably mid/late 90's and early 2000's. We don't seem to want to fix it and our expert economists certainly don't want to understand the various causes. Which leaves the lemmings clueless.
The Key “rockstar” economy was greatly driven by increased immigration levels compared to the Labour govt prior. Short-sighted stupidity mostly for the benefit of the wealthy, also stupidly for non-residents before that was stopped. There is now another bunch of self-interest stupids in control. .
There are nearly 11,000 available rentals and 44,500 listed houses on Trade Me, one week until winter. Meanwhile population increase is dwindling, may turn negative in spring.
What housing shortage? Any housing shortage referred to is a shortage of affordable housing, and really we don't have a shortage of affordable housing at all, just a shortage of realistic vendors and landlords. Long way down from the moon.
I wouldnt use the total number of listings and consider them available. During my rental experience late last year I learned people dont remove their listings and simply dont respond. 50% non response 25% some response but no viewing possible so assume 25% availability.
"You're also going to reduce rental supply pushing rents up and increasing homelessness"
Every existing house that is not bought by a non owner occupier is purchased by an owner occupier thereby reducing the number of households that need to rent. Owner occupier buyers will less likely be outbid by non owner occupier buyers who get other advantages such as equity recycling techniques, interest only financing, interest deductibility which most owner occupier buyers do not get. Priority for existing houses should be given to end user owner occupier buyers, rather than non owner occupier buyers seeking tax free capital gains. The home ownership rates are at multi decade lows.
https://www.rnz.co.nz/news/national/432369/homeownership-rates-lowest-i…
If property investors want to supply housing in the long term rental market, then they should be incentivised to buy new builds. This increases the residential dwellings for renters and for the growing population.
There will be always be a need to provide affordable housing. As house prices rise and become unaffordable, more social housing will be required, and more households will require accommodation supplements. This uses funds that could be better deployed elsewhere by the government for other services - education, health, police, etc
"STamp duty in UK and Australia hasn't solved the same problem so how is NZ different - hint it isn't."
Just because it's called stamp duty, it doesn't work the same in each country.
Stamp duty is calculated in a different way in each country for different purposes
Here is how stamp duty works in
1) Australia - rates are determined at the State level (i.e state funding) not Federal level
https://www.anz.com.au/personal/home-loans/tips-and-guides/guide-to-sta…
https://www.money.com.au/home-loans/stamp-duty-calculator
2) UK - rates are based on the purchase price of the property
https://www.gov.uk/stamp-duty-land-tax/residential-property-rates
3) Singapore
https://www.iras.gov.sg/taxes/stamp-duty/for-property/buying-or-acquiri…-(absd)
https://www.propertyguru.com.sg/property-guides/additional-buyers-stamp…
Note how stamp duty in Singapore is targetted and favours citizen owner occupier buyers over other buyers (non citizens such as permanent residents, foreigners, first property, second property, non owner occupier buyers)
The other difference is note that rates of stamp duty for each following category of buyers.
a) Foreigners have stamp duty currently at 60%.
b) Entities (companies or associations) buying any property have stamp duty of 65%
The UK stamp duty and Australian stamp duty systems do not do make the buyer distinctions that Singapore does. (Queensland does have a foreign buyer stamp duty)
Stamp duty in NZ could be designed in a similar way to Singapore (where end user citizen / resident owner occupier buyers benefit) rather than UK, or Australia.
It's not but a stamp duty is a great way to increase revenue for council to pay for stuff to make the state more attractive to immigrants. We seem very tax-resistant and would be a fantastic way to 'discount' FHB citizens if you made stamp duty exempt or discounted from their purchases of property if we do not want to implement some form of CGT or land tax. It will also disincentivise purchasing property as an investment to increase productivity.
would be a fantastic way to 'discount' FHB citizens if you made stamp duty exempt or discounted from their purchases of property
In Singapore, citizens owner occupier buyers are exempt for their first residential property. There is stamp duty on additional residential property.
https://www.propertyguru.com.sg/property-guides/additional-buyers-stamp…
"stamp duty is a great way to increase revenue for council "
Want stamp duty determined by central government rather than local government as local governments could determine their policy with different objectives in mind and policy becomes ineffective in meeting the central government policy objective on housing - see Australia where stamp duty is determined at the State level.
It will also disincentivise purchasing property as an investment to increase productivity.
Want stamp duty to apply only to existing residential properties. Want incentives for new constructed residential properties (new builds)
The high inflation items such as rates, insurance, rents and overseas travel will not be tamed by high interest rates. Instead, businesses, the economy, and most people will continue to be adversely affected by high interest rates with seemingly no empathy from the rbnz.
"with seemingly no empathy from the rbnz."
The remit of the RBNZ is clear and transparent. It has been consistent for decades. The remit is quantitative in nature and does not include empathy. People should plan accordingly. Those who fail to plan are planning to fail.
There are people who planned and have large amounts of savings. These savers will now reap the benefits of higher interest rates.
For many years, borrowers reaped the benefits of lower interest rates whilst savers earned low returns on their savings.
It's all they have, and was implemented at a time when the largest generation were taking on mortgages, so it worked well for the time. Less relevant now of course, but CN is right, they don't care about the damage they do as they have to remove emotion and deal with hard fact and stats in order to focus on their mandate.
Bang on…lower rates to make payments somewhat more affordable but ensure we have tougher lending restrictions to keep a cap on what people can borrow/spend, if the bulk of buyers are capped then won’t that keep prices subdued apart from the odd cashed up outlier but there wouldn’t be enough of them to pump up prices.
Or carry on like this & f**k the economy, followed by panic & slashing of rates/removal of restrictions to “stimulate” & watch the whole sh*tshow start again…ACE
The beauty of reacting by changing the ocr is that everyone can plan for it.
Economies all boom and bust. Interest rates, asset prices and industries follow the boom bust cycles. And everyone knows what to expect and how to price their risk.
It's not just house prices that get affected too.. the biggest issue in nz is that lack of other controls on house prices so they always bear the brunt of the cycles. But for some reason nz loves property and won't accept CGT and other controls.
And limit the ability to leverage equity into existing homes? Include homes in the CPI?
Unfortunately the real shift required is a change in the narrative of "getting rich from property mate".
How do we shift out of rentier capitalism, starting with the banks and financial system?
More competition in the financial sector and less restrictive legislation and fewer obstructionist bureacrats - hint - fire the whole of the 16,000 extra Wellington wallies that ardern inflicted on NZ and continue to reduce until the public sector becomes an enabler for the population and not its master.
The mandate is okay.
The tools they choose to use are not!
Go through their statement. How many times do they admit they're crippling the economy with their policies? (Answer: NEVER)
Funny that your comment has so many 'thumbs up'. Good to know I not wrong when I say Kiwis are are dumb as dirt.
It would be a lot worse if our dollar halved in value (dramatic scenario for effect only), the cost of our imported fuel and fertiliser doubled, and these costs went through the economy, wages would stay down, inflation would run rampant again and we would end up far worse than just getting to maybe 5-7% unemployment for a period of time. Everyone got far too used to the rockstar economy paid for in debt, and have forgotten the past.
Not at all. Were you happy the RBNZ kept rates low for far too long calling inflation "transitory"? They are hopeless at their jobs, partly driven by the lack of good data, but mostly through their collective incompetence. If you cheer when they are incompetent one way, you are cheering for them to be incompetent the other way as well. Both are disastrous.
Baptist, thankfully, the RBNZ's annualisation of inflation is far more credible than yours....
They're vested in getting inflation well and truly under control whereas the miopic Joe speculator would prefer their assets explode in price once again from lots of cheap money.
Going forward, I believe this will be more about the resetting of people's price expectations to a more sensible level.
The economy is in far worse shape than RBNZ think as they rely on historic stats whilst I see office and industrial building vacancies increase, unemployment and liquidations rising and even a few mortgagee sales, just look at the amount of advertising sales and offers - the trend is your friend and the trend is negative unless your eyes are closed Orr you see the light at the end of the tunnel until the light is a train which runs over you.
"If they dropped 6 months ago (and presumably 2-3 drops in that time) - what does that do to the value of the NZD?"
Why do you presume the RBNZ would have 2-3 drops in that time?
Likewise, why do you presume I would have done the same?
(FYI: My daughter finds your username hilarious. And she wonders how old you are.)
Vested interests increase their earnings thanks to the super-high net migration rates. Those able to jump ship and relocate to Aussie escape this living nightmare, and those of us left behind are punished with higher interest rates for longer.
Sure, there is a rental crisis across the ditch, but skilled workers playing their cards well should get a minimum 20-30% bump in wages.
Sorry bruv, can’t be touching the sacred ‘S’ (superannuation) so we have ti keep importing workers to pay taxes to try and keep it sustainable. Just like drinking the hangover off it will only last so long before the juice stops flowing and the party comes to a painful end.
Well hate to tell you Mr Orr but council rates and house insurance have to paid. No saying honey we won't pay the rates this quarter or go out for dinner. So by council rates going up along with insurance along with other things is a big reason why rents have gone up. Also you wanting higher unemployment so flood the market with cheaper labour to keep wages down. All because you and Robertson printed 60 odd billion and flooded the market thru total incompetence
Yes in around about way saying we need wages down we need a certain percent unemployed. So in a nut shell when you only have a certain amount of population you need new immigrants to achieve that. So govt wether Labour or Nat etc listen to him. So open the gates remeber a year to 18 mth ago the pressure from big business on Hipkins to just rubber stamp work visas. Which also worked to Orrs favor.
"Applies to stocks - not residential homes."
For stocks / shares, people can dollar cost average over time. Shares are also relatively liquid and can be sold easily with lower transaction costs compared to the sale of a residential dwelling.
A purchase of a residential dwelling for an owner occupier buyer:
1) is likely to be the largest purchase that they will make
2) the purchase price will be a large proportion of net worth (and can be up to 500% - 2000% of net worth) - i.e 80% - 95% LVR mortgage)
3) unable to purchased on a dollar cost average basis like shares / stocks
Hence the purchase of a residential dwelling for most owner occupiers is likely to be a single highly leveraged purchase where the owner must be able to hold on under ALL conditions:
1) higher interest rates
2) loss or reduction in household income.
3) rise in living costs - e.g choosing to have children
For highly leveraged buyers in Auckland and Wellington in the 2020 - 2022 period, many may see a large proportion of their equity deposit goes up in smoke. That could be their entire lifetime savings.
Some may even go into negative equity and still owe their lender after the lender takes the sale proceeds.
The future financial trajectory is now forever changed. Especially those nearing retirement who may never recover.
Looks like the answer I got here are unanimous. I'm not the kind of person to take major decisions in a rush and lately it has been beneficial to me: multi bid offers never materialised, agents are coming back to me saying vendors will now accept several hundred thousands below asking price. After several weeks (sometimes a couple of months) the houses I have visited are still on the market. Even better, agents are presenting me properties with CVs further and further away from my budget knowing the peak is truly behind us.
"multi bid offers never materialised"
Owner occupier buyers - real estate agents are not fiduciaries (and do not owe a fiduciary duty of care) to buyers.
Commission earners need to earn commission so that they can pay for their own living costs (and even keep their jobs as they are required to meet sales targets above minimum thresholds)
ABC - Always Be Closing (youtube.com)
I'm in the same position. My landlord just tried to increase the rent by $50 a week, just because..
That nearly made me pull the trigger. I ran some numbers though and went back with a $20 a week take it or leave it offer.
I thought in a worst case scenario, prices remain flat over the year, while I increase my deposit and get a likely salary bump. Best case prices retreat another 10% or so.
Just keep an eye on REINZ HPI, OCR and unemployment figures and be ready to move when you start to see a shift.
A lot more hawkish than I was expecting, this will probably be the moment the property market finally caves in.
For those moaning about it, there is no other path out of this. A little island miles from anywhere still has some of the highest property prices on the planet and one of the worst current account deficits. If we cut now the currency tanks and we get imported inflation.
It's time to take our medicine, buckle up.
Same - my costs are still rising so charge out rates will go up.
If they take their foot off the brake too soon (and more money becomes available) we would need to raise charge out rates quickly to ensure we can afford skilled staff and keep our margins healthy to grow.
Same here.
If I look at what is going up for my business cost-wise:
- Travel (primarily national travel - some good deals intl) - I didn't realise Dick Turpin runs Air NZ these days
- Insurance - Liability, cybersecurity risk etc is all going up significantly. Getting to the point where it might be cheaper to be sued if something really goes "t*ts up".
- Software - take Xero for example, they are up to their usual tricks of another price increase for no improved functionality.
And at the end of the day I need to draw a bigger income to keep up with the council trying to rob me blind to pay for a new stadium in which the Crusaders can keep losing miserably, or to pay a car insurance premium that is now more per year than you used to be able to buy a good runabout car for.
Will a higher for longer OCR solve any of this? I'm not Jfoe so I'm not gonna comment. But presumably if everybody is raising prices, CPI goes up, RBNZ is forced by mandate to act, thus the cycle continues.
Yes costs are rising, but demand pull inflation seems dead, not sure what your industry is but the margin on zero sales is zero…the cost of zero sales is still your ongoing overheads…if they over cook this & take even more demand out of our economy then the decision whether to increase your price or not might be the least of most business owners worries.
"I can see another wave of inflation in my business ocr need to be increase again. "
So you're saying that high interest rates - that have resulted in 4 out of 5 quarters of negative growth - aren't working?
And you want higher interest rates?
Most doctors would say the medicine isn't working and they'd change to a new treatment.
But not you? You want more?
Seeing the same here too, tried to have a few candid discussions with suppliers about holding off price increases for the good of all parties and the end consumer, but I’ll just to have to pass it on…
Consumers / Businesses can’t take this beating forever and pains me to do it… If the brown stuff hits the fan, backpedalling these increases to meet the consumer will be a mission….
There we have it, the young Tyson heavy hands Left, Right and Final Brain shaking (Truly goodnight nurse) uppercut knockout blow, for the NZ housing market!
Specuvesters arses twitching much now.....no hope of lower Mortgage rates, or white horse rescue coming till maybe 2026.....WOW.
Cue images of mortgaged housing sinking deep into troubled mud....
Speaking of Tyson ... how good was the undisputed heavyweight title fight on the weekend? Well worth waiting 25 years for.
And on the theme of boxing, who has more brain damage - Tyson Fury after that sickening combo he took from the spectacular Usyk, or your average property spruiker who is going to somehow try and spin this HFL message as being good for property prices?
It looks like Ardern's parting shot in installing Orr for another 5 year term is working for the globalists. Hiking OCR in a recession will cause a depression. Repossesed houses will be snapped up by the big institutions to rent back to the people that used to own them.
"While weaker capacity pressures and an easing labour market are reducing domestic inflation, this decline is tempered by sectors of the economy that are less sensitive to interest rates. ......"including rents...." Wow, so the main cost of a landlords business goes up (mortgage) and yet apparently this isn't sensitive to them putting their rents up. Find me that part of my old economics textbook!
Yield is sensitive to interest rates, but market rent is set by... the market. When interest rates dropped to zero, rents didn't go to 0 with them, but yield nearly did. People still bought, lord knows why.
Investors should be pleased that with each OCR increase, yield is likely to increase in the future. But of course, that means capital loss, not cramming 10 tenants into the townhouse.
Basically if I spent $1,000,000 for $30,000 yield, I should uppercut myself.
"People still bought, lord knows why."
1) People did not believe that house prices could fall more than the 10% experienced during the GFC in 2008/2009.
2) expectations of continued house price growth into the future based on extrapolation of the long term growth of historical house prices (and tax free capital gains). The commonly repeated house prices double every 10 years.
3) people believed that mortgage interest rates would remain low.
60% chance of a hike... Businesses, consumers and households will be even more nervous now after hearing that. The issue we currently have is that we have a few global and local factors that are causing sticky inflation and these will not be going away any time soon. Climate change, Geopolitical divides in the world order and War are all inflationary. Shipping container prices are going back up, oil is elevated. On the home front high migration is inflationary. Insurance and rate increases are as well.
Some commonly repeated phrases by property promoters used before the peak in Nov 2021 in Auckland and Wellington:
1) you can never lose with property
2) you never go wrong with bricks and mortar
3) house prices always go up / never go down
4) rent is dead money
5) people should own their own home over renting
6) there is population growth so property prices don't go down / will always rise
7) everyone needs somewhere to live so property will always be in demand and property prices will rise
8) there is an underlying housing shortage so property prices will not go down by much
9) real estate are a hedge against inflation
10) they're not making any more land
11) debt erodes with inflation, so buy real estate with as much debt as possible
12) house prices double every 10 years
13) no one has bought property in the last 10 years ago has regretted it
14) time in the market, not timing the market
Tony Alexander, Ashley Church and the Oneroof ferrets are apoplectic and steaming from the ears....."our lives and credibility is in ruins" they utter from angry, pursed lips!
Hahaha.
The biggest ha ha ha part of that comment is that you seem to believe the crippling levels of the OCR only affect house prices.
They don't!
It is about time Kiwis grew up where issues related to the OCR are concerned.
But the OCR level isn't crippling. We've had this level and higher before.
Therefore there's other underlying causes and issues that are not being addressed or discussed, and we've ignored for too long.
The RBNZ, the government, the market, the economists, and we the people, are all clueless.
And the reason people bring it back to house prices is because that's all we've run our policy, investment, economic and monetary thinking on for the past two decades.
The business was not actually profitable, borrowing obscured this.
The economy was too big and not underwritten by energy. Now it's becoming apparent. We could have tried to build a resilient one rather than focus on growth = good regardless of consequences but we didn't so now it's collapsing.
'Higher for Longer! Baby!'
The longer mortgage interest rates stay higher, means more highly leveraged property owners are running out of their cash reserves which are being depleted due to higher debt service payments and negative cashflow properties (aka top-ups) for property investors. This increases the risk of payment default on the mortgage.
Look at those raising cash:
- items being sold to raise cash - surplus cars, boats, holiday homes, etc
- the number who are using hardship withdrawals on their KiwiSaver,
.
If the mortgage payment goes into arrears, then what will the lenders do?
It had to happen sooner or later though. I have a fair amount of debt too so the high interest rates don’t suit me, but having rates near 0 was terrible.
While there have been many opinions about the RBNZ mandate and toolkit, the one change I would like to see is a minimum OCR of 5%. Anything below that is just an own goal.
Considering it is highly likely that there will be significant housing and corporate debt defaults following the massive debt buildup in the era of cheap credit, why do you think it won’t lead to deflation? I hope you’re right because a deflationary outcome will be so ugly
I see your point that the decline in overpriced assets like housing isn’t technically deflationary. However, my concern extends beyond just asset prices. I'm worried about the ripple effects of massive debt defaults, which could initiate a vicious cycle: debt defaults lead to reduced spending, prompting companies and individuals to lower prices of goods, services, and assets. This reduction in revenue can cause companies to cut costs through layoffs, increasing unemployment. Reduced employment then leads to even less spending and further price reductions, potentially spiraling into broader economic deflation. How do you see the possibility of these wider economic impacts stemming from the debt crisis?
Implement a CGT tax to get revenue as there are still arguably the majority of houses - bought prior to 2020 that will still have capital gain. Use the extra revenue for targeted spending and limit the banks to having a certain percentage of their lending portfolio to residential mortgages to prevent future asset bubble risk such as we are seeing unfold now after decades of inflating prices.
Hey. I don't agree with RBNZ decision to lower rates too far for so long. I didn't agree with covid payments.
I also don't agree with the fact we don't have a cgt and people are incentivised during booms to borrow cheap money and buy houses.ididny vote labour.
However we are a democracy. Decisions were made by the people that the people 'we elected' put in charge and they have to be lived with
Doesn't the govt set the RBNZ targets and they implement them? That technically isn't undemocratic. I think you can criticise the RBNZ for the way it tries to achieve those targets but it isn't undemocratic as that is what the democratically elected government has tasked it to do.
We use monetary policy to achieve the Government's target of keeping inflation between 1% and 3% on average over the medium term, with a focus on keeping future average inflation near the 2% target midpoint
Religions don't question their beliefs.
https://www.rbnz.govt.nz/about-us/tane-mahuta-and-our-financial-system
Two months ago I needed a very small concrete cutting job. Had a specialist come around. He looked at the job and when I asked for a number he came up with a price, $360+gst that I thought reasonable so I asked to him to slot it by the end of April24 and he was fine with that. End of April came and went so I got some else in who gave me a price and I asked if he could do it there and then. $250+gst so he commenced.
Appears to me still too much business floating around in construction. I'll test the waters again in the next two to three weeks on some high level structural design.
Really, you are going to raise interest rates again? 6%+ unemployment is politically tolerable is it? More like you are trying to talk up the NZ dollar to keep a lid on tradeable inflation. So when you do have to cut the OCR this year the cost to defend the NZ Dollar with your forex war chest won't be so bad.
Have always picked 5.75%. Still a fair shot of it. Inflation very stubborn, healthy wage increases still happening although people are losing jobs now. Immigration taps turned off. Demand for housing will become flat soon. Brightline selling from July. House prices should continue decline 2024. Probably a healthy thing to bring it down 20% more to affordable levels. If you need to sell, selling now is best. Might have to take a hit, otherwise could be a long wait.
Investors who are holding on are losing money monthly eg rent minus huge loan interest and costs. However, if they sell from July, they can get out and realise profit or stem the bleeding. In the backdrop of declining or flat prices in next 24 months, it does not make sense to keep holding on painfully. These are the speculative people. I think the smart ones have sold, but many more starting to realise and come onto the market. Very dangerous if you lose jobs.
It depends on who wants to sell. Those holding long won't care if they bought the property prior to 2020 most likely, however those who bought at higher prices and are topping the mortgage up substantially will be enticed to sell to offload the debt burden. Those with properties already paid off and creaming the profit can have the profit used to help top up other properties and so on, thus negating the need to sell and allowing the owner to hold long still. This is why no matter what changes are made, even if they had DTI's far more restrictive for investors, the ones who already have at least one fully paid off house apart form their own residence will still end up well off.
Peak prices was in Nov 2021. The new (old) 2 year Brightline will bring properties that were purchased between Jul 2019 and Jul 2022 to market, so there will be plenty that would have been purchased at prices much lower than what they will sell for today. Additionally, even properties that were settled (and paid for) in late 2021/early 2022 may well have been purchased off the plan 2 years earlier at lower prices (Brightline period starts on settlement date not contract date). Those buyers who settled in 2021/2022 obtained exceptionally low mortgage interest rates, and 2 years later are now rolling on to 7% interest rates. They are now paying tens of thousands of dollars a year to subsidise their tenants living there, and will be selling up investment properties in order to pay down the mortgage on their own homes.
This is the final Hawkish statement, the final scare tactic for the populace to squeeze a little more blood and fear without actually changing anything.. we will be off a cliff (might already be half way down) before we know it and the cuts will come thick and fast.
To take these statements at face value is absolutely foolish, their job is to convey mood and perception as much as actual monetary policy and the amount of times they've bluffed previously is all need to know this is the final piece of fear mongering before they pivot, inline with the FED.
Peoples memories are so short term it's ridiculous..
He is just bowling bouncers to intimidate the market....
Lots on NZ Interest rate trading desks just lost money... no one was expecting a cut but no one was expecting this hawkish....
Drown your sorrows at the chamberlain tomorrow boys.... your shout....
Vultures if you still have a P card
Housing speculation is indeed calling his bluff. Burn the rest of the economy down to protect tax free gains.
If the strategy is to hold everything up until the DTi framework is in place and then lower the DTi threshold to something that makes sense as the OCR is dropped, then that would be a good plan. National interfering with Dti then they are truly compromised to the banking and property lobby.
See what happens.
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