News & Research

Reserve Bank still taking a tough inflationary stance

Today’s 0.5% increase to the official cash rate (OCR) was larger than many commentators (myself included) had been anticipating, but it reflects the Reserve Bank’s (RBNZ) continued concerns about inflation.

Weighing on this is the effect Cyclone Gabrielle may have on pushing up consumer prices and economic activity via the rebuild.

In the short statement that accompanied the decision there was an acknowledgement of some early signs of economic slowdown, as well as the potential threat from recent global banking issues. But these were deemed to be less material than current (and future) inflation pressures across the NZ economy, which necessitated another sharp OCR increase. The statement also gave little away about what’s next for the OCR, but a reasonable assumption for now seems to be that we get one more 0.25% rise on May 24, with the tightening cycle potentially ending there.

So what might this all mean for mortgage holders and the housing market? Generally speaking, the flow-through from the OCR change to mortgage rates is likely to be pretty limited, as tighter monetary policy has already been ‘priced in’ by the banks. In other words, it still seems likely that mortgage rates are at or close to a peak, which is probably the first hurdle now cleared in terms of the housing market downturn getting closer to ending.

That said, it’s still too early to sound the all-clear and suddenly expect sales volumes to pick up and house prices to find a floor. After all, new borrowers are still facing tough serviceability testing and a continued wave of existing mortgages are yet to be repriced to current rates of around 6.5%. These will remain challenges for the housing market for a few months yet – especially with the RBNZ wanting to emphasise that they’re not about to ‘go soft’ on inflation and suddenly lower the OCR anytime soon.

However, net migration is now rising, and businesses are looking to retain their current workers at all costs because of skills shortages. These factors could bolster the housing market. Meanwhile, although the election is a long way away, some scope for a potential change of government could see mortgage interest deductibility reinstated and also some investor demand returning.

All up, uncertainty is still high, but there still remains light at the end of the tunnel for the housing market later in 2023.


Kelvin Davidson

Meet Kelvin Davidson

Chief Economist


Kelvin joined CoreLogic in March 2018 as Senior Research Analyst, before moving into his current role of Chief Economist. He brings with him a wealth of experience, having spent 15 years working largely in private sector economic consultancies in both New Zealand and the UK.

Full profile

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