On November 1 New Zealand house prices showed the first sign of strain with their first annual fall in more than 11 years. Prices fell 0.6% from the previous year and values fell for a 7th consecutive month. This is due to the affordability challenge for buyers either getting new or applying for extensions to their mortgages. According to Bloomberg, some economists are projecting a 13% fall in house prices this year with further falls in 2023 and a peak-to-trough slump of 18-20%. The impact of higher interest rates is being felt.
So, will this slow down the RBNZ?
The last meeting saw an RBNZ resolute on hiking rates. The RBNZ took a definite hawkish stance and high inflation was flagged as a concern. Headline inflation remains at 7.2% y/y.
Core inflation continues to rise with June’s print continuing the upward trend.
Governor Orr stated on November 02 that the RBNZ is determined to bring inflation down to 2%. So, the RBNZ is faced with inflation that it needs to reduce.
What’s expected on Wednesday?
The current expectations are all as follows. The majority (15/23) of economists surveyed by Reuters expect a 75 bps rate hike to 4.25%. The remaining 8 expect a 50bps rate hike. The Short Term Interest Rate markets expect (as of the end of last week) a near 50/50 split on a 75bps or 50bps rate hike. So, there are options here either way for a surprise. See here the probability options from Financial Source.
However, the best opportunity would likely come from a 50bps hike and more dovish communication that might focus on the slowing housing sector. So, it would be reasonable to expect that to weaken the NZD out of the meeting.