Market Update

Cash rate drops even lower

March saw the Reserve Bank of New Zealand cut it's official cash rate another 0.25 per cent. It now sits at 2.25 per cent, which is even lower than what the cash rate was after the Global Financial Crisis.

The reason the Reserve Bank keeps cutting rates is to avoid inflation dropping too low. The Bank has a target range for inflation to settle between 1-3 per cent. And whilst inflation is expected to move towards this range, the central bank believes it could take a little bit longer to get there than first anticipated.

That’s why monetary policy is accommodating this target through cash rate reductions. The Reserve Bank continues to say that further easing may be required to help ensure that average inflation settles near the middle of the target range.

Turning our attention to housing, according to a BNZ overview released in March, there has been a significant jump in construction in New Zealand, with more than 27,000 issued nationally in the year to January. This is a rise of 9.9 per cent from a year earlier. Let’s have a look how it varies across the country.

In Canterbury the report shows that dwelling consents have actually fallen by 13 per cent this past year to sit just over 6,000 compared to 7,255 a year ago. This is likely the result of a lot of the post earthquake construction being completed.

In Auckland we’re seeing the opposite. We’re seeing growth in construction here, although it is widely believed a lot more needs to be done if we’re really going to improve the housing shortage situation over the next few years.

In the year to January in Auckland consents for the construction of more than 9,000 dwellings were issued. This is an increase of 22 per cent from a year before.

With five cash rate reductions since June 2015, homeowners and buyers will no doubt be looking for savings on their home loans. It will be interesting to see how things continue throughout 2016.