Market Update May 2017

After the Reserve Bank meeting, earlier this month, governor Graeme Wheeler has left the official cash rate (OCR) unchanged at a steady 1.75%. He also kept the rate track unchanged, stating his view that the reasons for the recent headline inflation spike are likely to be temporary. “The increase in headline inflation in the March quarter was mainly due to higher tradables inflation, particularly petrol and food prices,” Wheeler said in a statement. “These effects are temporary and may lead to some variability in headline inflation over the year ahead. According to Wheeler, there is expectation that wage inflation and non-tradables will increasingly move. "This will bring future headline inflation to the midpoint of the target band over the medium term. Longer-term inflation expectations remain well-anchored at around 2 per cent." The RBNZ acknowledged, earlier in the year that the US President Trump could influence the NZ housing market and has maintained that the official cash rate will rise to 1.9% in September 2019 and will reach 2% in the third month of 2020, but will stay unchanged until then. Meanwhile, in Auckland, fixed mortgage rates and tough LVR restrictions, have contributed to a slow housing market right through March and April, however, there was a rise in other cities such as Wellington and Dunedin. With building approvals declining and migration increasing, it’s still a balancing act between supply and demand, and the lack in the increase of rents makes it unlikely that there will be a housing price swell anytime soon.