Housing market could still push up OCR
The Official Cash Rate (OCR) remains unchanged at 7.25% following the Reserve Bank’s latest review, but inflationary drivers including the still-buoyant housing market may mean that rate won’t be sustainable for long.
Sunday, December 10th 2006, 12:00AM
by The Landlord
Reserve Bank Governor Alan Bollard said, “While overall medium-term inflation pressures have increased, the balance of risks also appears to be on the upside”.“The housing market appears to have developed new momentum after slowing in the first half of the year. Houses are now selling as fast as at any time this year.”
“Household spending continues to show surprising resilience. The labour market remains very firm, with continued strong growth in incomes despite some easing in employment in the third quarter.”
“The housing market could continue to defy predictions of a downturn, and domestic demand could be further boosted by a fiscal expansion over and above the stimulus that is already allowed for in our projections (based on the government’s 2006 Budget).
“Looking ahead, our projections and risk assessment suggest that a firmer monetary policy stance could still be required to maintain downward pressure on inflation in the medium term. Further tightening cannot therefore be ruled out.”
“This will depend on economic outcomes and in particular the emerging trends in housing and domestic demand indicators. Any easing of policy must remain some considerable way off.”
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