Today our Central Bank Governor lowered the OCR to 2.75%, here are the key aspects of what was talked about.
Positive factors continue to support growth including: Robust tourism, strong net migration, large pipeline of construction activity in Auckland and other regions, the lower interest rates and depreciation of the NZ dollar
Challenges include: Sharp decline in export prices, moderate growth prospects abroad mainly due to weaker activity and sharemarket volatility, plateauing of construction activity in Canterbury
Inflation
Headline CPI inflation remains below the 1 to 3 percent target, .3% year to June.
Growth of the economy
The economy is still growing although at a slightly slower pace than last year. A moderation in export prices, stabilising growth in construction activity and net immigration are being reflected in the change in GDP.
House Prices
“House price inflation is beginning to increase in some other areas, such as Hamilton and Tauranga. Policy measures announced in Budget 2015 and restrictions on high to loan-to-value ratio lending to investors in Auckland are expected to help dampen demand for existing houses.”(Monetary Policy Statement 09/2015 Reserve Bank)
Lower export prices have an impact on consumer confidence but growth in house prices and real labour incomes are supporting some growth in household consumption. Lower petrol prices are also helping to boost household purchasing power.
Employment
“Annual employment growth eased to around 3 percent over the first half of 2015, in line with slower growth in economic activity, but remains historically high.”(Monetary Policy Statement 09/2015 Reserve Bank)
Most economists now predict another cut early next year. The central bank was concerned about the Auckland housing market but believes that addressing the supply side of the equation will lead to a better result.
The bank has made some relatively strong moves with its macro prudential tools to address the demand side of the issue. But have always indicated that it will not be the only solution and at best slow the pace of the increases only. The figures coming out now are starting to reflect some of the impact of the bias of central bank rules towards investing outside of Auckland.
The new restrictions and tax changes will give the central bank and the government a lot more ammunition to fight off any future downturn in prices. This can give further confidence to investors looking for a safe haven in a world with low yield investments.
