Official cash rate on hold and set to stay put

Stability is the name of the game this month, with the official cash rate on hold and the central bank looking to keep a lid on inflation.

The Reserve Bank of New Zealand (RBNZ) has kept the official cash rate at 1.75%, unchanged since February 2017. A recent statement indicated no plans to change this anytime soon in spite of a new governor taking over the RBNZ.

“The sentiment is that Governor Spencer has left the ship sailing in the right direction and has successfully emerged from some choppy conditions caused by a change of government,” says Capital Economics Chief New Zealand Economist Paul Dales.

Meanwhile, the central bank has been told to use monetary policy to keep inflation stable. They’re on task to keep it within a one to three percent range with a focus on staying firmly in the middle of that range. It’s all part of a push to maximise employment and keep prices stable.

We’ve also had an update on GDP growth with RBNZ Acting Governor, Grant Spencer, acknowledging that growth was weaker than expected in Q4 2017. There is hope of this strengthening though, with the Acting Governor looking at “accommodative monetary policy, a high terms of trade, government spending and population growth” to drive the change.

Calls for Loan-to-Value Ratio restrictions soften

With the official cash rate on hold and interest rates for loans set to remain low, calls for a change to Loan-to-Value Ratio (LVR) restrictions are on the rise.

The argument in play is; low interest rates mean little to first-home buyers if they still can’t hit that magic deposit number. The higher deposit requirements put in place by RBNZ initially helped cool off some housing markets such as Auckland, but critics are saying the job has been done and it’s time for these restrictions to ease. Competition between banks looks set to keep interest rates low for some time. For details of the new restrictions put in place at the start of this year have a read of my January update