Reserve Bank to Keep Raising Rates Despite Housing Slump
ANZ predicts three more OCR hikes by March, prioritizing inflation control over economic softness and rising unemployment.
Key points
- ANZ predicts the Reserve Bank will raise the OCR in October, February, and March.
- House sales declined in all regions except Manawatu-Whanganui, with rural areas also down.
- Rising oil prices and a weak currency are driving inflation despite soft consumer spending.
The official cash rate will likely rise three more times by March 2024. This decision ignores the sharp drop in house sales and the 11-year high in unemployment.
ANZ expects hikes in October, February, and March to combat oil-driven inflation. The Reserve Bank is prioritizing its 2 percent target over immediate economic pain.
Housing market shows severe regional declines
House sales fell in every region except Manawatu-Whanganui. Rural areas saw drops everywhere except Otago, signaling broad market weakness.
Simplicity chief economist Shamubeel Eaqub notes sales reflect 6.5 percent rate effects. This suggests the market is reacting strongly to the current 5.5 percent rate.
Inflation drivers force continued monetary tightening
Higher oil prices and a lower exchange rate are pushing inflation up. Electricity charges and council rates are also running hotter than average.
ANZ economist Miles Workman states the Bank must offset these imported costs. This requires keeping the OCR high to maintain the 2 percent target.
Consumer spending stalls amid cost pressures
Households and businesses have paused spending plans due to high fuel prices. A weak currency further increases the cost of imported goods.
BNZ chief economist Mike Jones describes this as an awkward balance. Subdued growth coexists with problematic inflation driven by offshore factors.
