Global economic outlook has “continued to improve”
Banks and other financial institutions have updated their forecasts following the Reserve Bank of New Zealand’s (RBNZ) latest Monetary Policy Review and official cash rate (OCR) announcements.
Yesterday, the RBNZ kept the OCR at its current level of 0.25% and announced that it will halt the Large Scale Asset Purchase (LSAP) programme by July 23. It explained that its global economic outlook has “continued to improve,” so it has agreed to reduce the stimulatory level of monetary settings to meet its objectives over the medium term.
CoreLogic NZ chief property economist Kelvin Davidson commented that the latest decisions were not surprising, and they were a sign of tighter monetary policy ahead.
However, Davidson expects the RBNZ to increase the OCR as early as November 2021 (or even, with a smaller chance, August) as the central bank begins to remove the emergency support for the economy.
“This is a tricky balancing act for the RBNZ, in trying to pre-empt a rise in inflation without pushing up the exchange rate too much (and hence dampening exports),” Davidson continued.
“Of course, a looming rise in the official cash rate will also directly affect the housing market, with borrowers already seeing mortgage rates increase – and from a low base for rates (as well as larger debts), that could have quite a strong effect.
“Then you’ve also got to add in the pre-existing effects of affordability pressures, 40% deposits for investors, the extended bright-line test, and the tightening of interest deductibility rules (as well as the approval for the RBNZ to look at debt to income restrictions). Certainly, mortgaged investors’ share of property purchases has fallen in the past two to three months, albeit there are few signs that current landlords are looking to sell.”
Read more: RBNZ releases Monetary Policy Review and OCR decision
ASB, ANZ, and BNZ also released their forecasts – expecting the OCR to reach 0.5% next month, according to Stuff.
ASB chief economist Nick Tuffley said the RBNZ had “clearly changed tack” and could raise the OCR at any future meeting.
“Essentially, every OCR decision from now on should be considered ‘live’,” Tuffley said, as reported by Stuff.
In response to the latest OCR decision, ASB increased its fixed-term mortgage rates (from six months to five years) by 0.30% and one-year and two-year fixed terms by 0.36%. It has also lifted its term deposit rate to 1.2% for its 200-day term – an increase from 0.8%.
ANZ economists said the RBNZ’s title of its release, “Monetary Stimulus Reduced,” was a clear sign that it considered the monetary policy cycle to have returned. Meanwhile, BNZ research head Stephen Toplis said it was to the central bank’s credit that it had “acknowledged the sheer pressure of the recent economic data and its inflationary risks.”
Kiwibank chief economist Jarrod Kerr described the RBNZ’s statement as “hawkish,” with the end to QE purchases ahead of market expectations.
Meanwhile, Westpac economist Michael Gordon said they expect a rate-rise in November, but the odds of an August hike had risen.
