1. No change and lots of change all at the same time?
Starting with the big-ticket item for this week, the Reserve Bank of New Zealand will decide the fate of the Official Cash Rate (OCR) on Wednesday at 2pm. I suspect the Reserve Bank will hold the OCR steady at 5.5%, because it feels like the Reserve Bank wants to see annual inflation, currently 3.3%, return to the 1-3% target band – and we won’t get the Q3 inflation numbers until October 17.
What I think will change on Wednesday is the Reserve Bank’s language. What it says in its Monetary Policy Statement, accompanying the OCR decision, will be of huge importance, and will give Kiwis an insight into how it views the general economic condition of the country, inflation, interest rates and house prices.
Its forecast for the OCR will be pored over. Previously, the Reserve Bank indicated no cuts until this time next year. But surely this will be pulled forward to 2024, possibly even as early as October (my pick at this stage remains November). The OCR could drop to around 4.5% by the middle of next year, which in turn could bring down the rate of a typical fixed 6-18 month mortgage to below 6% – perhaps even 5.5% if the banks are fighting for market share.
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2. Labour market data was ‘middle of the road’
One of the reasons we might not see a rate cut this week is last week’s labour market figures. Granted, the unemployment rate rose from 4.3% in Q1 to 4.6% in Q2. That’s far from ideal. But it was driven by a larger labour force, not job cuts (employment rose in Q2), which is less bad. The unemployment number was also bang in line with what the Reserve Bank had been expecting, so overall I’m not sure these figures really shifted the OCR dial in either direction.
3. More pain and less gain
Finally turning to some property data, last week CoreLogic released its Q2 Pain and Gain Report, which showed about 92% of properties sold for more than the owner originally paid, down from 93% in Q1, and well below the previous peak of 99%. In other words, a few more vendors experienced pain in Q2 (or a gross loss), which isn’t a surprise, given that buyers have the power when it comes to price negotiations. That said, clearly, most sellers still get more than what they paid, which ultimately reflects hold period – if you own a property for many decades, the chances of a loss will obviously be far smaller than somebody who buys and sells again quickly.
CoreLogic chief economist Kelvin Davidson: "It feels like the Reserve Bank wants to see annual inflation return to the 1-3% target band." Photo / Peter Meecham
4. Migration and rents likely to slow again
Upcoming data from Stats NZ this week includes the twin-releases of net migration for June (Tuesday) and rent prices for July (Thursday). Migration has been dropping sharply in recent months, as arrivals ease but departures remain high, and that slowdown in population growth has been going alongside flatter rents. In June, the rise in rents from a year earlier was only 2.5% (versus long-term average of 3.3%), and another soft result looks pretty likely in July too.
5. Economic activity still just stumbling along
We’ll also get the NZ Activity Index from Stats NZ for July on Friday this week. June’s figure on this timely indicator for the health of the overall economy was certainly on the weak side (down by 1.1% from a year earlier), so it’ll be really interesting to see what July shows. Another negative result would certainly add pressure on the RBNZ to cut the OCR, if they haven’t already done so by then.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
