Reserve Bank Governor Graeme Wheeler reaffirmed this morning that the OCR will stay on hold throughout 2013.
That appears to contrast with what Deputy Governor Grant Spencer said in a recent speech. He told members of the Employers and Manufacturers Association that if house price inflation continued, the bank would consider a monetary response.
But economist Mark Lister, of Craigs, said that was likely a tactical move. “The Reserve Bank does do that from time to time, they make comments they hope will scare people into thinking they can move it if they want to. They don’t want to increase interest rates. If they do, it will push the currency up even further and it’s the currency that’s causing them issues.”
Announcing that the OCR would stay at 2.5%, Wheeler acknowledged that growth in New Zealand had picked up and the country’s rate of spending was also growing.
“House price inflation is high in some regions, despite prices already being elevated. The bank does not want to see financial or price stability compromised by housing demand getting too far ahead of supply.”
But he also acknowledged the impact of fiscal consolidation and the summer’s drought on the economy.
Gareth Kiernan, of Infometrics, said while fiscal consolidation was a fair reason to keep the OCR low, it was odd that the Reserve Bank had highlighted it only now when the state of the Government’s books had been known for several years.
Westpac chief economist Dominick Stephens said the Reserve Bank was striking a balance between two risks – that the housing market and Canterbury rebuild would fuel more growth than expected, and, on the other side, that the Kiwi dollar could further rise, hurting exporters and suppressing inflation.
“There is no need for the RBNZ to decide between these risks at present. We expect it will continue to sit on the fence until we have greater clarity around which risk is more poignant.”
Lister said the Reserve Bank would be more sensible to use macroprudential tools to slow the Auckland and Christchurch housing markets. “They’re in a really tough spot. They want to target the Auckland market but they can’t do that without hurting the rest of the country.”
The dollar lifted slightly after the announcement, even though the RBNZ said it thought it was over-valued.
