Economists surveyed by www.mortgagerates.co.nz where unanimous in their view that the Reserve Bank would leave the OCR at its historic 2.50% low next week.
Likewise nearly all of them were picking that the first OCR increase in three years would come on March 13 next year. Almost three years to the day when it was cut 50 basis points.
We also asked economists what probability they put on an OCR increase in Janaury rather than March. None of them ruled out the chance of an early increase and some put the probability as high as 30%.
Westpac’s economists said the market had priced in a 40% chance that the first movement in the cash rate could come next month.
But they said they did not agree. “We feel that the hurdle for January is too high, given the RBNZ’s concern about the high exchange rate and the need for more data on how its loan-to-value ratio restrictions are affecting the housing market.”
Inflation was expected to remain subdued for a while longer and even if the dollar were to fall significantly, it would be several months before the Reserve Bank was able to get an impression of whether the LVR restrictions had made any dent in rising house prices.
“RBNZ has made it clear that a slower rate of house price growth will be the measure of success for macro-prudential policy. Given the typical lags in the housing market, it could be several more months before we have a clear sense one way or another about the impact on house prices.”
Early indicators are that borrowers with more equity are stepping into the space left by deserting first-home buyers, and Westpac’s economists said that tallied with predictions of only a small impact on house price growth – and hiking starting in April.
BNZ economist Craig Ebert said there were still fears that the LVR restrictions could cause the housing market to collapse.
But he said the fact that the most recent household credit data showed a 0.5% expansion, the same pace as September and August, would help allay fears.
“As for those trying to read negativity into the news of a 0.6% fall in residential building consents for October, they need to realise it’s a very noisy series at the best of times, which is why we keep an eye on the many leading indicators. And these, for home-building, are very positive. We also note that consents for home renovations are really perking up now, while for non-residential construction are gaining in annual growth terms. “
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