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?
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.