RBNZ Survey: Only 30% Of Experts Believe A Cash Rate Rise Will End Surging Property Prices

News highlights:

67% of economists foresee a labor shortage in 2022
Just under half say international travel will return in the first quarter of next year
All economists predict an OCR increase in November

22 November 2021, New Zealand – Economists aren’t convinced that an increase to the official cash rate (OCR) will end the nation’s rapid rise in property prices, according to a new Finder poll.

In this month’s Finder RBNZ Official Cash Rate Survey, 10 experts and economists weighed in on future OCR moves and other issues relating to the state of New Zealand’s economy.

While all experts surveyed (100%, 10/10) predict that the OCR will increase in November from the current 0.50%, only 1 in 3 (30%, 3/10) believe that the cash rate rising will put an end to property price growth.

Angus Kidman, Finder’s editor-at-large for New Zealand, said it was clear another rate rise was on the horizon.

“The impact this will have on the housing market remains unclear.

“Interest rates have typically been used as a key tool to cool house prices, but further action is likely needed to really get those under control.”

All economists (100%, 9/9) expect banks to increase interest rates in line with the growing cash rate.

Jarrod Kerr of Kiwibank said a tightening would send a further clear signal to households that the period of "cheap money" is over.

“Banks will pass on the higher cost of borrowing, making it more expensive to take out and service a mortgage. A blunt but effective move.”

Debbie Roberts of Property Apprentice said with interest rates coming off such low levels, it will take a much larger increase to really affect affordability.

“However, what will slow the property price surge will be any further tightening of lending criteria from banks and non-bank lenders.”

Experts positive towards wage growth, but cost of living remains tough

Finder's Economic Sentiment Tracker gauges experts' confidence in 5 key indicators: housing affordability, employment, wage growth, cost of living and household debt over the next 6 months.

While the majority of experts (80%, 8/10) are feeling positive towards wage growth, negativity towards the cost of living remains high.

Kidman said positivity towards wage growth was welcome news.

“Growing wages could help to make house prices more attainable. Right now, those prices are out of reach, so it's pleasing to see the majority of experts predicting wage rises.”

International to slowly return, but a labor shortage is on the cards

Just short of half of respondents who weighed in* (44%, 4/9) predict international travel to return in the first quarter of next year.

Kidman said a return to normal will be welcome news for Kiwis with family overseas.

“Remember if you’re planning an overseas trip, travel insurance remains a must.”

Dr Oliver Hartwich of The New Zealand Initiative said borders opening back up would be an unmitigated positive.

“The sooner it happens, the better.”

While experts were largely positive towards the economic impact of international travel returning, the majority surveyed (67%, 6/9) foresee a labor shortage in 2022.

Brad Olsen of Infometrics said borders reopening could see flows of people out of New Zealand outweigh those coming into the country.

“High house prices, and high inflation, coupled with lower wage growth, might limit some interest in coming to New Zealand.”

*Experts are not required to answer every question in the survey

Here’s what our experts had to say:

Ashley Church, ashleychurch.com: "The rhetoric coming out of the Reserve Bank now appears to support an ongoing program of increases."

Professor Saten Kumar, Auckland University of Technology: "Inflation is higher and it is expected to further rise. Amongst other things, excessive demand and issues with the supply chain are creating upward pressure on consumer prices. It would be therefore pragmatic for RBNZ to raise OCR this month and also over the upcoming months. Something for RBNZ to consider carefully would be the resulting impact on businesses and economic activity due to current lockdowns in the country. In the case, the aggregate activity falls drastically over the coming months then the RBNZ should reconsider its policy stance. To this end, an expansionary policy might be warranted to get the economy moving forward. "

Kelvin Davidson, CoreLogic: "Inflation above target and employment high, so the case is clear."

Michael Reddell, Croaking Cassandra economic commentary blog: "Core inflation has risen to a surprising extent, and basic Taylor principle economics suggests the OCR needs to rise quite a bit. But....the factors supporting demand and activity growth are likely to be fading before long (fiscal and monetary policy, and reopened borders which probably will result in a net less of domestic demand)."

Donal Curtin, Economics New Zealand: "Worse than expected Sept quarter inflation outcome; abundant evidence of ongoing cost pressures; previously stated tightening intentions; previous move even ahead of a formal Monetary Policy Statement."

Brad Olsen, Infometrics: "With a substantially stronger GDP starting point, considerably higher inflation (4.9%pa) and record-low unemployment, the Reserve Bank will need to raise interest rates, by at least 25bp, in November. Given the strength of the data and the resilient state of the economy, a 50bp increase must be firmly on the table as a live option. If ever there was a time that merited such a strong rise, current economic data would support now to be that time. We also anticipate that RBNZ may need to revisit settings in late January, ahead of the February 2022 MPS, as pressures continue to build."

Jarrod Kerr, Kiwibank: "When considering the RBNZ's dual mandate, inflation and employment, interest rate hikes are warranted. I expect a hike in November and at each meeting over the next year."

Debbie Roberts, Property Apprentice: "Despite the current Covid outbreak, inflation is at higher than expected levels, and with increasing levels of vaccination nationwide, it is anticipated that Auckland business owners who have been able to survive the lockdown will be permitted to start moving towards a new normal for their business as we move into the traffic light system."

Dr. Oliver Hartwich, The New Zealand Initiative: "Consumer price inflation is well above target, while the labor market is overheating. A withdrawal of monetary stimulus is long overdue, not least to stop further asset price inflation."

Alfred Guender, University of Canterbury: "The RBNZ clearly signaled in early October the beginning of a tightening cycle. Anything but a continuation would be a surprise. The probability of a strict lockdown occurring is now almost nil given the impending move to the traffic light system. The RBNZ now has a bit more breathing space on its journey back to traditional monetary policy."

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