Today the Reserve Bank (RBNZ) kept the official cash rate (OCR) on hold at 1.75% for the 14th consecutive time. And although other factors (e.g. higher offshore interest rates) may eventually win out, for now the predicted flat-track for the OCR until late 2020 suggests that this period of low domestic mortgage rates is far from over yet.
Today’s OCR decision was no surprise. Inflation remains well contained and the labour market is strong. In other words, the RBNZ’s dual mandate is being met with the OCR at its current level.
One key aspect of the announcement was that it did not contain the phrase “the direction of our next OCR move could be up or down”. It may have already been absent prior to yesterday’s labour market data, but whatever the case, the drop in the unemployment rate has now seemingly taken a near-term rate cut off the table.
Even so, all of this points to a benign environment for borrowers. The RBNZ’s expectation that the OCR will be unchanged until late 2020 (or even slightly into 2021) suggests that domestic mortgage rates will also stay low and stable, particularly given that banks are still fighting hard to attract the best borrowers in the current low-turnover property market. However, it’s always worth keeping an eye on the overseas money markets, and the risk that higher offshore borrowing costs flow through to NZ rates over the next 6-12 months can’t be ruled out.
It remains to be seen if anything new or additional comes out of today's 10 am media conference, for example perhaps some extra guidance around the RBNZ’s plans for the LVR speed limits. A relaxation of the rules could help to stimulate property sales activity as we move into 2019, but they’ve already been successful in helping to engineer an “orderly slowdown”, so the RBNZ will, of course, be wary of kick-starting another bounce in house prices.