Source: Cotality – Commentary by Chief Property Economist Kelvin Davidson
As widely expected, the Reserve Bank’s Monetary Policy Committee held the official cash rate (OCR) unchanged at 2.25% today. Even though Governor Breman’s speech from 24th March certainly wasn’t intended to pre-empt today’s OCR call, that’s effectively what it did, given that the content was pretty similar.
Indeed, the Bank reiterated the reluctance to respond to the initial effects of higher oil prices but also that they’re firmly focussed on the risks of ‘second round’ impacts such as higher wage negotiations which could see wider inflation (and expectations) become more embedded. They indicated swift and decisive OCR rises should those risks become reality.
On the flipside, however, the record of the meeting also contained a fair amount of discussion about economic activity risks if/when the conflict got really drawn-out and we ran into fuel shortages. Reduced economic activity would of course tend to have a downwards influence on inflation (alongside pre-existing spare capacity).
Ultimately, we’re still in wait-and-see mode on Iran, inflation, the economy, the official cash rate, and a whole lot more besides – with the news earlier in the day of a two-week ceasefire just adding to this fast-moving situation.
For the property market, uncertainty still prevails too. A lasting ceasefire may limit any effects on housing activity and prices. But there’s already been a drift higher for mortgage rates and/or a softer economy would also tend to be restrictive for property.
Given that there’s already a mood of caution amongst buyers and sellers in the housing market, it would not be a surprise to see recent tentative signs of rising property values peter out in the next few months or even go back into reverse.
