New Zealand Interest Rates Remain At Mercy Of Housing Sector

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Over the best part of the last year the Reserve Bank of New Zealand (RBNZ) has been trying to slow down the housing market, its primary method being to raise official interest rates.

As TD Securities economist Stephen Koukoulas notes the bank also looked at alternative instruments, commissioning a study into the viability of other options such as additional property taxes, lifting the supply of housing and some discretionary limits on lending.

Having received the report the bank has now rejected the use of any other measures as unsuitable, which in Koukoulas’s view is likely to be of limited direct impact on the market, but may ease the pressure on the Kiwi dollar.

This is because the rejection of the report indicates the RBNZ will be forced to keep interest rates high until there are clear signs the housing market is slowing.

As a result, while some market participants had begun to factor in an easing in official interest rates, the RBNZ’s stance makes this unlikely until there is clear evidence the current pressures in the housing sector are abating.

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