Slight Interest Rate Rise Forecast (14/6/2013)

The Reserve Bank left the official cash rate unchanged at 2.50% this week, and repeated its previous position that it expects 'to keep the OCR unchanged through the end of the year'. However, it still remains worried about house prices and the exchange rate.  Despite this, there is no mention in the OCR statement about the bank using its new acro-prudential tools to try and contain the housing market.  This can be explained by the fact that the bank has a framework for its new tools, but it is still consulting on the possible implementation of them.

In its monetary policy statement, the bank says that its central projection is that house price inflation will moderate soon.  Nationally house prices rose 9% over the year to April.  Prices were up 14% and 11% in Auckand and Christchurch respectively, and outside these areas rose by around 4%.

The bank says house prices are very high relative to rents and household income.  It is concerned that the current escalation in house prices is increasing the probability and potential harm of a significant downward correction in house pirces.


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