New Zealand’s Reserve Bank has held firm on its official cash rate, leaving it at the basement 0.25 per cent.
The central bank released its quarterly monetary policy statement on Wednesday, with governor Adrian Orr satisfied with “current stimulatory” settings.
“We are confident that consumer price inflation will rise to near the two per cent midrange of our target and that employment will rise at its maximium sustainable employment level over the projection period,” he said.
“Having said that, meeting these requirements will necessitate ongoing considerable time and patience.”
The official cash rate (OCR) was lowered to the emergency level of 0.25 per cent in March 2020.
The statement says the OCR “eventually increases over the medium term”, suggesting September 2022.
The NZX 50 was steady on the announcement, while the NZ dollar jumped to be worth 94 Australian cents, and 73 US cents.
Missing from the governor’s oepning comments was its newly expanded remit to take into account housing prices, as directed by Finance Minister Grant Robertson in February.
New Zealand’s housing market has been white-hot since the arrival of COVID-19, which most analysts put down to the Reserve Bank’s expansionary monetary policy.
Mr Orr said the Reserve Bank simply had to “explain the impact of the decision” on house prices rather than factor them in like the consumer price index or employment.
“It’s really important to understand and I know that’s been a misconception globally,” he said.
House prices in New Zealand have grown by around 24 per cent over the past 12 months.
The record-setting rises have prompted Jacinda Ardern’s government to introduce reforms to slow the price rises and to help first-home owners into the market.
It is yet to do the trick: new data released by Quotable Value on Wednesday showed house prices rose even more over the last quarter than the previous three months.
However, the RBNZ believes a correction is coming.
Mr Orr said high residential construction, low population growth, restraints on lending and the government reforms will put the brakes on price growth.
“Our projections … are that house price growth slows signifcantly and soon,” he said.
In making that assessment, the RBNZ agrees with Treasury’s projections in last week’s budget.