News & Research

Reserve Bank sticks firmly to the script

Chief Property Economist Kelvin Davidson unpacks the May cash rate decision and Monetary Policy Statement, and what it means for the housing market.

Today’s decision by the Reserve Bank of New Zealand (RBNZ) to leave the official cash rate (OCR) unchanged at 5.5% was no surprise. As also expected, the general position of their economic forecasts wasn’t massively changed either, although if anything, the data and commentary reinforced the idea of ‘higher for longer’ interest rates – with the timing of inflation’s return to the 1-3% target band pushed back a bit.

Given this was a set-piece Monetary Policy Statement, the press release announcing the no-change call for the OCR was accompanied by detailed projections for a wide range of economic variables. According to the figures, the RBNZ thinks we’ve emerged from technical recession, but also that GDP growth will remain very muted in 2024-25, with employment set to stagnate and unemployment likely to rise (as the labour force grows).

Meanwhile, the RBNZ doesn’t think headline CPI inflation will be back within the 1-3% target band until perhaps Q4 this year, later than the original Q3 expectation. It may stay stubbornly higher in 2025 as well, so it was no surprise to see a slightly higher forecast track for the official cash rate too.

It’s worth noting that the OCR isn’t the only influence on mortgage rates; factors such as bank competition and offshore financing rates also play an important role. But in an environment where OCR cuts appear even more likely now to be a story for 2025 than 2024, something similar seems a sensible assumption for mortgage rates too.

As such, conditions look set to remain testing for at least 6-9 months for new borrowers, as well as those existing mortgage holders who still need to fully reprice up to current market rates. Sales volumes and property values could also remain fairly soft, and even if mortgage rates do start to fall more appreciably in 2025, that’s when the limiting influence of (likely) debt to income restrictions would start to kick in.

All in all, this remains the year of the underwhelming upturn for the property market, and with some job cuts now showing through, downside risks to house prices have certainly not disappeared altogether – especially with buyers have plenty of choice amongst the elevated levels of listings on the market.


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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