The Reserve Bank has left the Official Cash Rate unchanged at 3.5 percent and the outlook is for no further interest rate changes over the next year.
Inflation remains modest, and was just 1% in the year to September. The ANZ notes that this result marks 3 years during which inflation has been below the midpoint of the Reserve Bank’s 1% to 3% target.
Contributing factors are subdued wage inflation, well-anchored inflation expectations, weak global inflation, falls in oil prices, and the high New Zealand dollar. House price inflation has reduced significantly since late-2013, in part due to interest rate increases and the LVR restrictions. Despite this, the ANZ state in their quarterly economic data review that about 80% of the increase in consumer prices in the September year was from housing and household utilities. These increases will no doubt make it more expensive to provide rental property and higher rental prices may be the result.
The global economy is growing at a moderate rate although recent data suggests some softening in the major economies, apart from the United States. The Reserve Bank expects international interest rates to remain supportive (i.e. low) for longer in all the major economies.
Interest rates are stable even though growth in the New Zealand economy has been faster than the expected trend over 2014. This growth has reduced unemployment and added to demands on productive capacity. In addition, strong construction sector activity, high net immigration, and interest rates (which remain low by historic standards) continue to support the expansion.
Countering these positive factors, lower commodity prices and increased global financial market volatility have taken some pressure off the New Zealand dollar. Despite this, the Reserve Bank believes that the NZ$'s current level remains unjustified and unsustainable, constraining growth in the tradables sector. Because of this, the Bank expects further significant depreciation in the NZ$.
"The economy appears to be adjusting to the policy measures undertaken by the Bank over the past year. CPI inflation is currently at a low level despite above-trend growth" says the Reserve Bank. "However inflation is expected to increase as the expansion continues. A period of assessment remains appropriate before considering further policy adjustment".
The ANZ says "while we are coy about jumping on ‘new paradigm’ band-wagons, we do note that inflationary dynamics do appear to be changing. The CPI report confirms that there is no hurry for the RBNZ to resume OCR increases. We have changed our OCR call and we now expect no further hikes until December 2015. This is due to confirmation of benign domestic inflation pressures. "
The ANZ graph below demonstrates how interest rates have progressively fallen over the years and also how long interest rates have stayed low during this current period of the latest property cycle. It would appear that restrictions on low LVR lending are reducing the need for interest rate increases, which was an expected if not hopeful outcome.
No doubt the Reserve Bank’s new inflation restricting tool will have an impact on future interest rate predictions.
Don't forget that as a PIA member you automatically get preferential mortgage interest rates from the ANZ and these can be negotiated still further. This applies to refinancing from other banks as well, so contact ANZ and see what they can do. Don't forget to go through a mobile mortgage manager, which you can find at www.anz.co.nz/mmm or by calling 0800 269 4663.comments powered by Disqus