Source: Cotality – Commentary by Chief Property Economist Kelvin Davidson
As widely expected, the Reserve Bank’s Monetary Policy Committee, under new Governor Anna Breman, held the official cash rate unchanged at 2.25% today. This was firmly in line with the forward guidance from the previous meeting in November and it reflects the expectation that spare capacity in the economy should ultimately pull inflation back down again.
Many of the key economic forecasts released today were essentially unchanged from three months ago. The RBNZ expects the economy to expand by just short of 3% this year, with employment rising consistently and the unemployment rate edging down from 5.4% to 5.0% by the end of 2026. CPI inflation may already be back within the 1-3% target band this quarter.
The decision also noted that “if the economy evolves as expected, monetary policy is likely to remain accommodative for some time”.
This suggests no immediate rush to bump up the OCR. Even so, the forecast track was ‘pulled forward’ a little, pointing to the probability of a rate rise late this year rather than early next year, as previously indicated. This really just endorses what financial markets and many commentators had already been suggesting was likely to happen and reflects the Bank’s suggestion that “settings will gradually normalise”.
For the housing market, it also just remains a case of waiting to see how a range of conflicting forces play out. On one hand, although banks have already been pushing small moves in some mortgage rates lately, generally they remain fairly stable and much lower than before. This will be supporting property sales activity and house prices.
By contrast, however, a cautious attitude still prevails across the market, and it’s difficult to see a sharp turnaround for activity or prices until jobs growth picks up and the unemployment rate falls more emphatically. This looks set to be a story for later in 2026 rather than sooner.
Indeed, the RBNZ itself predicts that property values could even fall a bit further in the next 3-6 months before edging higher later this year. They could end up flat for 2026 as a whole and only rise by 3.0% in 2027.
Based on the recent rise in physical housing stock versus population, and also the new restraint of debt to income ratio caps, it’s hard to disagree too much with those modest expectations.
