By David Hargreaves
The Reserve Bank would be unlikely to ever admit it, but it's likely that Auckland's troublesome housing market got in the way of another interest rate cut.
I say that the RBNZ might not want to admit it; well, the reason is that since rising house prices are not yet posing a significant inflation problem, the incendiary Auckland market falls outside the current gambit of monetary policy.
At this point the houses are a financial stability problem, financial stability being the other branch of the RBNZ's responsibilities. But as is being talked of a lot at the moment, the monetary policy and financial stability roles are not sitting at all well with each other and it is a conflict that needs sorting out.
Having predicted that the RBNZ WOULD yesterday cut the Official Cash Rate below the current record low of 2.25%, I'll take my medicine on this one.
To me, yesterday's statement looked like a central bank trying to buy itself a little time while it worked through some desperately difficult decisions.
Remember, the RBNZ has its next Financial Stability Report coming out on May 11. Expect plenty on houses in this.
Should we now, however, be expecting anything definitive from the RBNZ in terms of new measures against the market and/or the banks?
Personally I think the non-cut yesterday suggests that there will be sabre rattling but not as yet substantive proposals.
It may well be that the the central bank is waiting for the Government to sort out exactly what it wants to do in and around the Budget on May 26.
Last year there was the twin attack on the housing market with the RBNZ's May FSR announcing the new measures against Auckland investors that ultimately took effect in November, while the Government unleashed tax proposals that were introduced in October.
Has the government decided definitively what it wants to do? Perhaps not. There seems to be a lot of thinking out loud going on at the moment - probably in an attempt to see how public opinion sits. All this might mean the RBNZ's playing a bit of a waiting game, which has little to do with inflation and a lot to do with the houses.
I'll go back to what I said last week, which was that if the RBNZ was confident it had got its lines sorted out for the FSR announcement, I didn't think it would have any problem cutting interest rates this week.
I suggested that there would be a cut this week and the foreshadowing of new housing-aimed financial measures less than two weeks later.
I also said anything less decisive than that would suggest a central bank that's really struggling to get to grips at the moment with the twin and conflicting monetary and financial stability roles. And so it seems to be.
I still think the RBNZ is going to be forced to cut rates further and that will presumably happen in June. The chances have firmed that the Reserve Bank of Australia will be forced to cut rates across the ditch from their current 2% on May 3, so there will be a half percentage point gap between our rates and their rates again.
Globally, I just think we will be forced into it. The strength of the New Zealand dollar is likely to keep the pressure on.
Of course the further down the interest rates go then the more the heat is likely to emit from the housing market.
So, probably between them, the Government and the RBNZ really do have to come up with something this time around.
They had a go last year and they failed. But the Government was definitely very half-hearted about it. Perhaps only now is it starting to get the true magnitude of the situation and the need for action. It's at least a start that there is that recognition.
The worry would have to be that whatever comes out in the Budget is likely to be a half-way measure that won't fix the problem and could make it worse.
For the RBNZ the interesting times continue.
I don't buy the market sentiment that says the central bank was less 'dovish' in this OCR. Remember this is an RBNZ that has previously just about said point blank that it wouldn't drop rates again - and then has.
Daub a big red-inked note in the diary that says RATE CUT for June 9.