In the last RBNZ rate decision, the RBNZ has been needing to reference the housing market in their monetary policy decisions. This is not a normal mandate for a central bank. So, why are they having to do this?

A New Zealand surge in house prices

There has been a huge increase in New Zealand house prices. This is partly being fuelled by the very low-interest rates which means that borrowers have access to favourable lending condition. This is allowing the housing sector to keep rising in prices.

What does this create pressure for the RBNZ?

Well, potentially this ‘ties the hands’ of the RBNZ and means that they may be unable to use easy monetary policy. Take a look at the chart below and you can see that as interest rates fall house prices have risen.

The political pressure (remember the mandate to look at housing prices comes from the NZ finance minister) means that the RBNZ will not want to cut interest rates. Cutting rates will definitely further fuel the housing sector bubble. So, it is possible to argue that the RBNZ is not going to be able to easily cut rates.

But what else does it mean?

With interest rates so low many people have only ever known low mortgage rates. Many people, taking their first mortgage in particular, are unaware of the impact a fluctuating interest rate will have on their re-payments. The high-interest rates of the past have not been experienced. This is one are to watch in the future as central banks may find themselves hedged in with political and economic concerns. For now, the RBNZ policy consideration should support the NZD. NZDJPY should find dip buyers as long as the global growth narrative remains in play.