Economists’ predictions came true as the Reserve Bank of New Zealand (RBNZ) decided to keep the official cash rate (OCR) at its current level of 0.25%.
The Monetary Policy Committee agreed to maintain the current stimulatory level of monetary settings to meet its consumer price inflation and employment objectives. Aside from the OCR, the Large Scale Asset Purchase (LSAP) program and Funding for Lending Program (FLP) remain unchanged.
According to Century 21 Financial New Zealand managing director Julius Capilitan, many experts and economists expect the OCR to remain low for some time. However, they are concerned about when interest rates will increase.
“This is reinforced by some banks currently pushing very sharp rates on four and five-year terms such as 2.89% and 2.99%, which are increasingly tempting for homeowners,” Capilitan said.
“Don’t let commentators tell you interest rates are low but it’s impossible for many to borrow. Not true. Banks are set to really start jostling for market share both in the commercial and residential sectors. What’s more, banks are making a big shift to accommodate first-home buyers. Hence, we are seeing more incentives such as higher cash-back amounts being offered.”
Kiwibank chief economist Jarrod Kerr added: “What’s needed is time and patience. It’s the game plan most central banks around the world are running. And the RBNZ confirmed such a stance.”
“Based on our forecasts, the return to full employment and stable inflation (~2%) will take two years to achieve with confidence, and that’s without any further shocks. Risks remain, both to the upside and downside, but they’re balanced at least.”
Regarding the NZ$100 billion LSAP program, Kerr said the improvement in the government’s budgetary books means fewer bonds for the RBNZ to buy.
“And the RBNZ is already bumping up against its self-imposed 60% ownership limit,” he continued.
Meanwhile, regarding the FLP, Kerr said the RBNZ does not need to make any changes to a program that all banks will tap in time.
Kerr added: “Although the RBNZ reminded the banks of the expectations of use and fired a warning shot to banks, noting ‘The Committee agreed that any increase in bank lending rates would be premature given the current economic outlook.’”