The Reserve Bank has dropped the reference to risks of a resurgence in house prices and seems confident low house price inflation will continue, reinforced by Government policies.
The central bank, as expected, held the official cash rate (OCR) at 1.75% at its monetary policy statement meeting yesterday. In a statement, the bank said it incorporated preliminary estimates of the impact of new Government policies in four areas: new Government spending; the KiwiBuild programme; tighter visa requirements; and increases in the minimum wage.
The impact of those policies remained very uncertain, the bank said.
House price inflation had moderated because of loan-to-value restrictions, affordability constraints, reduced foreign demand and a tightening in credit conditions.
"Low house price inflation is expected to continue, reinforced by new Government policies on housing," the bank said.
ANZ chief economist Cameron Bagrie agreed with the Reserve Bank’s assessment of low house price inflation remaining. However, he disagreed with the central bank’s upbeat tone on economic growth in the coming year.
"It is assuming only a small degree of crowding out from the fiscal boost, which we are not sure about at a time when the economy is grappling with capacity pressures.
"It would be unusual for the economy to push towards 4% growth in an environment where the property market is soft.
"We think there will be more seepage from a slowdown in the housing market to the broader economy."
Westpac chief economist Dominick Stephens said he was still working on his own reassessment of the economic outlook in light of the new Government’s policies.
Westpac had come to a similar conclusion to the Reserve Bank. The new Government would stimulate the economy substantially from 2019 onwards.
"But in our view, the new housing market policies will have a deeper impact on house prices than the Reserve Bank is bracing for. For primarily this reason, our GDP growth forecast for 2018 is substantially weaker than the Reserve Bank’s."
The Reserve Bank was forecasting 3.6% annual GDP growth in 2018, while Westpac expected something close to 2.5%, he said.
The ANZ was forecasting a rise in the OCR late next year and Westpac was expecting no change until December 2019, with gradual hikes to follow.
At a glance
• OCR remains unchanged at 1.75%
• House prices not expected to rise
• Slower economic growth expected
• Disparity among economists about next OCR rise
