Key Facts

  • The Official Cash Rate (OCR) decision is expected on Wednesday, with an uncertain outcome. While many economists do not anticipate changes, ANZ suggests potential rises.
  • Although inflation is falling, and the economy is not hot, about 55% of existing mortgages are yet to be fully repriced from lower rates to current interest rates.
  • The NZ Activity Index was 1.5% higher in January 2022 compared to the same month last year, suggesting the economy is not in recession.
  • Evidence of cautious attitudes towards low deposit finance has been noticed, as only about 7-8% of recent owner-occupier lending has been done at less than a 20% deposit.
  • Recent job creation and security may lead to additional mortgage finance, but also contribute to inflation.
  • The downward trend in dwelling consents poses a concern as strong population growth continues amid limited construction.

Article Summary

The next Official Cash Rate (OCR) decision is due on Wednesday. While the majority of bank economists predict no change, ANZ proposes two possible upcoming increases. Despite falling inflation and tepid economic activity, pressure persists due to around 55% of mortgages still needing to be repriced at current interest rates. As a result, no OCR changes are expected on Wednesday. The Reserve Bank is likely to maintain wariness, expressing concerns on inflation remaining above the 1-3% target range.

Positively, the NZ Activity Index increased by 1.5% in January compared to the same month last year, suggesting the economy has avoided recession. However, this could keep inflation elevated for a longer time, potentially influencing mortgage rates. Further, the latest Reserve Bank data on mortgage lending flows are predicted to report a modest increase in activity. Their loan to value ratio breakdown might exhibit precautionary attitudes towards low deposit finance.

Upcoming figures from Stats NZ are expected to show an increase in filled job positions, which can foster new mortgage financing and loan adjustments due to higher interest rates. Nonetheless, this may drive inflation, which the Reserve Bank is actively combating. Lastly, the persisting downward trend in dwelling consents data is worrying amidst strong population growth. It raises concerns over possible housing shortages if the construction sector doesn’t recover soon.

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