OCR on hold, probably only temporarily

As widely expected, the Reserve Bank’s Monetary Policy Committee voted unanimously to keep the official cash rate unchanged today at 3.25%, the first ‘hold decision’ after six consecutive cuts. In its short commentary alongside the decision, the Committee noted a concern about lurking, near-term inflationary pressures and the need to keep monitoring those factors before any further moves are made.

However, the record of the meeting also set out the expectation that the tariffs and changes in global trading patterns will tend to restrain economic growth and eventually bring inflation back down again. The voting options in the latest meeting were also for no OCR change or a cut, indicating a downward bias.

As such, there was also a clear signal that we haven’t seen the last of the OCR cuts in this cycle yet, and a drop in August (20th) seems very much on the cards. By then, we’ll also have the Q2 CPI figures, which are due out 21st July.

Meanwhile, the housing market effects from today’s decision are likely to be negligible. Mortgage rates have already fallen a long way from their peak – and by a similar amount to the OCR – and we’re recently seeing in the data that a higher proportion of borrowers are now looking at longer-term fixed rates again, after a period of going short as market rates fell.

Even if a fresh bout of competition among the banks did re-emerge in the near term, the scale would be smaller than the falls in mortgage rates we’ve already seen. And the greater focus in the housing market at the moment seems to be on the other side of the ledger – i.e. the price restraint being supplied by abundant listings and labour market uncertainty.

Those concerns about job security might mean that many existing borrowers who are rolling off higher fixes from the past and down onto the new prevailing rates might choose to save their extra cash rather than spend it in the economy or property market. All in all, the second half of the year for NZ’s housing market may be just as subdued as the first.