Policymakers at the Reserve Bank (RBNZ) have slashed half a percentage point from the Official Cash Rate (OCR) and claimed victory in achieving its inflation mandate.
The seven person Monetary Policy Committee chose to cut the benchmark interest rate from 5.25% to 4.75% after meeting on Wednesday. In a statement, they said annual inflation was now within the target range and was "converging on the 2% midpoint".
"The New Zealand economy is now in a position of excess capacity, encouraging price- and wage-setting to adjust to a low-inflation economy. Lower import prices have assisted the disinflation," the media release said.
"The Committee agreed that it is appropriate to cut the OCR by 50 basis points to achieve and maintain low and stable inflation, while seeking to avoid unnecessary instability in output, employment, interest rates, and the exchange rate".
This move follows a 25 point cut at its previous meeting in August when high frequency data showed the economy was faltering faster than RBNZ had forecast in May.
Economists and financial markets mostly expected the 50 basis point cut on Wednesday afternoon, despite the central bank having signalled it would only cut 25 basis points.
In reaction to the OCR cut, New Zealand’s benchmark stock index climbed almost half a percentage point after the announcement, while the Kiwi dollar dropped 0.4% against the US and Aussie dollars. According to Westpac economists, in the financial markets, the two-year swap rate was down 7 basis points to 3.64% and the 10-year rate was down 6bps to 3.96% within a quarter of an hour of the announcement.
A recent survey of businesses found pricing intentions had dropped to pre-Covid levels, and headline annual inflation for September is forecast to be on target, when released next week.
Meanwhile, economic activity and labour market data have continued to weaken, prompting concerns that unemployment could hit 6% and the economy could experience deflation.
In a note published last week, ANZ’s chief economist Sharon Zollner said it was likely the RBNZ would be confident it had done enough to stamp out inflation.
Economists at ASB said they were increasingly concerned that interest rates were still very restrictive even though inflation and capacity pressures had already normalised.
In August, RBNZ projected it would gradually ease rates towards 3% over the next 18-months as long as pricing behaviour remained consistent with a low inflation environment.
Near-term surprises
The RBNZ Monetary Policy Committee said on Wednesday that the economy had evolved largely as expected in the past two months and the economy was running below its potential.
"Members agreed that increasing excess capacity is leading to lower inflationary pressure in the New Zealand economy. Economic growth is weak, in part because of low productivity growth, but mostly due to weak consumer spending and business investment."
The committee was confident next week’s consumer price index release for the September quarter would show annual inflation not just in the 1%-3% target range but almost at the 2% midpoint.
“Recent business visits suggest that weak demand is restricting the pass-through of increased input costs to prices faced by consumers. This is consistent with business surveys, which show a declining share of businesses intending to increase prices”.
Policymakers discussed both 25-basis point and 50-basis point cuts and ultimately reached a consensus that the larger cut would better avoid economic instability.
While the central bank’s price stability mandate has been simplified—removing a secondary target of full employment—it is still tasked with avoiding “unnecessary instability in output, employment, interest rates, and the exchange rate”.
The committee said the economic outlook was broadly consistent with its August assessment and an OCR of 4.75% was restrictive enough to "deal with any near-term surprises".
It said future changes to the OCR "would depend on its evolving assessment of the economy".
138 Comments
Its so tip top the RBNZ has to do 50bps cuts.
Houses can only go up in such a crap economy, which now fears outright deflation and worsening labour market.
This is a situation so bad that house prices will surely fall further, as always in a bad recessionary environment.
Not one of these Spruikers called for falling house prices at the start of 2024... not one
But here I was
-10% Dec 2023 to Dec 2024
Calling a person a ‘renter’ as a property investor is used as a derogatory slur despite the renter being the property investors customer and payer of their bills/mortgage on said investment.
Not sure if I know of any less professional trade - or is it a hobby for ‘Mum and Dads’? Hard to say. It’s a business when it suits (tax) and then it’s also not when it doesn’t (professional standards/business lending rates).
That troll account really spooked him with talking about 10% interest rates. Iceman is overleveraged, 10% interest rates is not something he wants to hear or believe.
The lingering possibility and unresolved tension makes him highly irritable and that's why he can be aggressive/thuggish to others who also hold the view of higher rates. Probably cheered for joy like the winning try on a Super Rugby game, he couldn't wait to come online and bask in vindication, ready to tell everyone, "I told you so".
Dumbledorf, all I can say is you risk coming across as a total tool with your wild assumption, my investment properties are cashflow positive.
You lot don’t like hearing the truth and can’t face the reality that all your predictions were total nonsense. Sorry if you’re having a bad day, but carry on with your assumptions.
Thank you, stjohn.
This needs to get out far, far more often so Kiwis understand exactly just how bad RBNZ policy has been over the last 4 years.
Just a small correction ... The RBNZ was talking about a negative OCR rate and not retail interest rates.
In any event ... Keep getting these facts out there!
It puts into context so much that that the bulk of us have been forced endure - through no fault of our own.
Still too soon I'd feel, maybe outside of increased investor activity.
Think it would need guaranteed another 50 BPS in November. I do think that will happen, but certainly isn't guaranteed.
Feel like neutral for current prices and economy is around 4.49 for one year mortgage rates.
Local swap markets, but the Fed too (with a significant correlation between the two, with the Fed calling the shots). The lack of credibility of the current RBNZ Governor does also play a part - the RBNZ's predictions and statements are perceived by markets as something of little value now.
As expected by most. It's a reasonable assumption that any real "lift off" in activity won't be in play till say 6-9 months after neutral rate of 3% is reached. The delay effect is very real and unemployment and general job insecurity is still rising.
This post will no doubt make the impatient debt addicts reach.
The last published neutral OCR rate from the RBNZ I read was 2.75%. It's always a very slow moving target and an educated guess.
But 3% is within range of a neutral OCR.
My most recent calcs & model simulations, done yesterday, have reversed and say it is now less. I.e. a neither contractionary, nor stimulatory, OCR neutral rate is probably below the RBNZ's 2.75%.
"...notably the DTI being tightened."
Agreed.
One notes that retail banks are still stress testing mortgage applicants at 9% which achieves the same thing ... for now. But the RBNZ must pull finger on this one real soon - like next MPS.
Will they? I doubt it ... based on past performance.
You are so wrong mate, everyone who has a mortgage rolling over is going 6 months and most people are already on this so the flow on into the property market will happen over this summer. Like I have been saying for over a month, now is the time to buy, how big do you need the sign to be ? More drops in the OCR to come.....
@ SomeKiwiFounder - Renting homes to those who cannot elsewise afford to buy is NZs most essential and most productive business. They not only add to the economy, bit it's now blatantly obvious that they are in fact a large portion of our economy.
For they provide 80% of the rentals accross the country for nearly half the entire population. They certainly don't do this out of charity. All governments past and present recognize this, hence they cannot afford to be without private landlords. For without them, the government's emergancy social housing wait list increases even more than the 548% under the last 6 years of the last government. Our country simply cannot afford more than the current 25,000 families homeless that are currently awaiting 5 years for government accomodation.
Investors also don't outbid price raise against FHBs, as the rental yield return just wouldnt stack up. Its FHBs competing against themselves, putting forward emotive offers, based on nothing other than a maximum pre approval amount served by the bank itself, for maximum lending capability. It is the FHB that clearly over extends their ridiculous offers on properties with no context at all as to the relevance of the approval amount vs the actual value of the home. Want to be angry at someone? Try deflect that anger to FHBs who do little to no research on the property or its value before they offer. Fear of missing out to other FHBs is ultimately what keeps FHBs paying more than they really should for a property. There's a high price to pay for emotive purchasing. That ain't on the property investors at all, no matter which way you try swing it. Good try though.
While I dont agree with de-risking debt, I know a number of people that will be somewhat relieved that Orr has taken this seriously. The guy that said he was going to manufacture a recession has done so and he could have kept going.
House price increases won’t increase until employment picks up and I would pick that as being a while away.
Because they're speculating on who can take on more debt when. And so the "NZ economy will continue to tank for another 6+ months", with lasting impact - long term our capacity to pay back debt is permanently impaired and we're simply relying on fools to take on more debt than they can ever pay back in order to keep this thing alive.
House prices may stabilise and rise as you say, my pick at the start of the year was stable all of 2024. But given the term of loans, who is looking as far as 2040 to 2050 and thinking "yep, LGTM"?
Average rate on mortgages is going to continue to go up for another few months and then reduce painfully slowly. So, while some people will see $ back in their pocket, disposable income in aggregate will not change really for a year or so. Certainly not enough to offset the impact of govt funding cuts and a low net flow of bank credit.
Those that have been enjoying high interest rates on their TDs will suffer. Could they have saved any it given cost of living increases?
Alas, many are retired and even small drops in fixed incomes are hard to absorb.
It is going to get a lot tougher all round.
I guess when you have egotists in central banking positions ... boom / bust, keeps them on the front page.
Sorry, I forget, did we vote for this RBNZ leadership? I can't remember ... ;-)
A lot of wishful thinking in these comments. Only thing slowing the housing market decline is vendors ability to wait. I see many spruikers are watching the OCR vs unemployment race here and betting on OCR winning, whether they’re aware of it or not. If unemployment rockets up then vendors will flinch…
SKF
Ridiculous decision. We took the sugar hit and now we got to live with the hangover. No one has ever found a cure for hangovers and for good reason. Same should apply here. All the NIMBY's applauding this should take a good hard look at themselves. We're so indebted to the ponzi, it's become a self fulfilling prophecy. Pathetic. Sad.
- Chubbs.
The reference will be to the fact that due to FOMO and loose interest rate settings, house prices escalated well beyond incomes remain massively inflated, and the entire NZ market is only propped up by the belief that the next chump will pay more than you did, by a staggering degree.
The Ponzi refers to people using housing as a get rich quick scheme. That’s mostly speculators and landlords (at least the ones that don’t build the houses themselves). It is not an attack on owning one’s own home, rather attacking it seeks to make homes more affordable for those that want to own their own one by making it less attractive for leeches to try and use them to ‘get rich quick’
SKF
@SKF - as per stats NZ more first home buyers are owning homes than in the history of NZ - your comment above seems to serve you not the community? Its just plainly incorrect. I rented for years thank goodness I could find a room to rent. When flooding in Auckland people were desperate to rent - Do you think a 20 year old wants to buy in papatoetoe and be saddled with a mortgage or rent a room in Ponsonby? Your ideology is really over simplified. PS straight up question have you ever stayed in an AirBNB? Or does that now count?
Nuance is usually like tossing pearls before swine. I’ll bite. There is a necessary function of market making in landlordship, however the current configuration has seen it become the target of non-productive rent seeking behaviour. That’s behaviour that seeks to extract more value than it creates. It’s what you can colloquially call leeching off of our country.
The total number of people per dwellings in this country is function unchanged from 1991 (stats NZ), yet the prices of houses have far outpaced incomes, this means you must work for more years to pay off the same thing. Additionally home ownership rates as listed by stats NZ shows us as barely increasing our rates since 2018, yet we are noticeably below 1991. That statistic is also biased high as it counts all boarders (flatmates and/or family living with the owner) as living in “their own home” as it’s an “owner occupied property.” I’m not exactly sure where you’re getting the stat that more people are owning their own homes than anytime In history.
The fix is to use government policy to change the incentives on buying existing houses to be worse, you can make this better for everyone else by making it a tax and using it to fund public services or tax cuts. But in any case, there are far too many people who are priced out of owning their own home despite wanting to for there to be a rational case that we should make landlording easier / better. Labour had it right in incentivising landlords driving demand for new builds while pulling taxes out of the leeches to fund things like ferries and hospitals.
SKF
@ SKF its a OK argument and however its not the only game in town - there is a place for landlords - as i said before the amount of people on benefit applying for renting my house (Govt pays) in Te Atatu South outweighs working people - so I can assure you above comment is OK however please don't be willfully blind = however I wish you the best.
Too little too late.
Does anyone really believe that the economy will jump into life, and property prices will rocket up again over night>
It will take months and well into next year for any benefits to be felt. In the meantime, businesses will still close, workers will be sacked, and existing high interest rates will continue to drag the economy down.
Don't breakout the champagne.
There are too many domestic and international uncertainties to play out just yet..
Also likely that hesitant would be Vendors ,will take this as a positive signal to List,and the over-supplied market ,will get more over - supplied over the next 9 months,at an accelerating rate. Trademe ,ALL of NZ listings ,end of August was 40786, 5 weeks later, 42460 . Could easily hit 50 k listings by June 2025.
That alone would depress average selling prices further.
I think this will happen too. There are a lot of people who have put their houses into the short or long term rental pools (esp those who have left the country), because they couldnt sell them. Now they will think its finally a better time to sell, and that stock will hit the market again. I think vendors will be feeling more relief than buyers as they try to escape the noose round their necks.
"Members agreed that an OCR of 4.75 percent is still restrictive and leaves monetary policy well-placed to deal with any near-term surprises."
Damn right it is! ... And no - I do not accept your reasons for leaving it at restrictive and contractionary level.
If, as the MPC states, inflation is within band and about the 2% target, then we should be close to neutral and NOT still in a restrictive and contractionary mode.
They're simply using weasel words to avoid having to issue a formal mea culpa that is now way overdue.
ICU Auckland lost another 17 nurses to Australia. Every week this happens and by next year there will be a scramble to replace the trained staff when another health crisis develops. All five of the graduants interviewed were told no they wouldn't get a place. New Zealand trained and not employed.
But this Govt will claim more jobs for construction! An economy is the people. It isn't just access to housing, and transport, it is often more basic like childcare and good health. So no improved hospital for the South where it should be, the hinterland feeding into Dunedin. Does this Govt think a private hospital in Queenstown will met the needs of the South?
All the while the RBNZ gives a div to the Govt.
There are thousands of recently arrived experienced foreign trained nurses in NZ right now. They are all begging for jobs as nurses and can't get them.. Suits all of the vested interests that want to suppress nurses pay. New graduates in NZ will be cannon fodder.
A jerking knee can do a lot of damage if it hits in the right place.
Nursing numbers have actually increased by 10k June 23 - June 24. I think that's a record? (and there are actually large numbers of unemployed nurses?).
chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.nursingcouncil.org.nz/common/Uploaded%20files/Nursing%20Cou…
https://newsroom.co.nz/2024/07/24/unexpected-success-in-hiring-nurses-d…
Nursing numbers haven't gone up anywhere near that much on a net basis Health NZ Financial Reporting from FY 2023/24 – Health New Zealand | Te Whatu Ora
From that report. "Many internationally qualified nurses apply for registration, are registered, and gain an APC while they are overseas; this allows them to begin nursing as soon as they arrive in the country."
But because of oversupply the end up working in menial jobs when they arrive if they can get a job at all. Public and private sector has no budget right now to employ them as nurses.
"Looks like RBNZ has learnt their lessons on reacting too slow. "
You're not serious, are you?
Oh. You are. [sad face. very sad face.]
So let's not talk about the fact that we've been in a recession, or going nowhere, for the last two years, nor how the RBNZ fueled a rampant bout of inflation (over which they really had no control), nor how .... OMG
No. ... I'm not repeating the facts again. It is too exhausting. Time to let morons, post moronic stuff. (No offence John. You are in a company of 000's)
Inflation tamed! I dont think so
The world economy can no longer function on "higher" interest rates so its impossible to raise them & keep them raised .... but
Ongoing cost pressures will continue to force businesses to raise prices (eventually to non viable levels) ... so we will keep seeing closures/job losses and the inevitable re-imergence of "transitory"(!!) inflation as Govts desperately ramp up the deficit spending to prop things up ...
At some point we can expect a Lehmans on steroids as something goes snap
Irrelevant, because interest rates are set by lenders based on their perceived risk of the investment. If lenders think property is more risky then they will increase interest rates. Currently they think that property is less risky than other businesses - and judging by the amount of business shutting down it seems they are correct on average.
In August, RBNZ projected it would gradually ease rates towards 3% over the next 18-months as long as pricing behaviour remained consistent with a low inflation environment.
The RBNZ Monetary Policy Committee said on Wednesday that the economy had evolved largely as expected in the past two months and the economy was running below its potential.
The committee was confident next week’s consumer price index release for the September quarter would show annual inflation not just in the 1%-3% target range but almost at the 2% midpoint.
It said future changes to the OCR "would depend on its evolving assessment of the economy".
There seems to be a few contradictions in their statements unless it's usual jawboning to make it look like they've got it all under control.
They expect the last quarters inflation to be bang on 2% yet have rates at a restrictive 1.75% over a predicted 3% neutral rate? Isn't that going to end up with quite a bit of overshoot to the downside? They claim credit for predicting how the economy was going to behave in the last couple of months (wasn't that great when they were expecting more rate increases not long ago) yet don't seem to know what's going to happen in the next few months domestically?
Things will get worse in the economy, CPI could go a ways below 2%, rates will still be restrictive for 6 months or so(?) and the RBNZ will still try and claim by then that "the economy had evolved largely as expected"?
Yep I found that out recently buying another house. I can get 5.5% for 2/3/4/5years, but they are test at +3% for a total of 8.5%. We will see test rates start to drop, as we all know the OCR -> swap rates -> test rates are interlinked. Even if they drop -0.5 to 8% there is still a lot of fat there to protect the banks, but most importantly FHB overpaying for sh*tboxes.
Tony A spookily sounding like me:
https://www.oneroof.co.nz/news/tony-alexander-what-the-ocr-cut-means-fo…
Interest factoid here ...
For people who are 2/3 the way through their 20-30 year mortgage and/or are already paying more principal than they pay in interest each repayment ... this cut makes bugger all difference. Why? Because most of their mortgage payments will be principal.
But for those in the first 1-10 years of their 20-30 mortgage ... It helps a lot.
Check for yourselves ... https://www.interest.co.nz/calculators/full-function-mortgage-calculator ... scroll down for the graphs.
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