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Will the RBNZ lift cash rates again?

Will the RBNZ lift cash rates again?

To remind readers, the Reserve Bank of New Zealand (RBNZ) was six months ahead of the Reserve Bank of Australia (RBA) in commencing their tightening interest rate cycle on 6 October 2021. On eight occasions, the New Zealand official cash rate has been tightened to 3.5 per cent, and a ninth tightening is expected at RBNZ’s next meeting today, Wednesday 23 November.

Late Mail: The ninth tightening of 0.75 per cent has taken the RBNZ official cash rate to 4.25 per cent, 1.4 per cent above the RBA official cash rate (2.85 per cent). This move will likely consign the New Zealand economy to a severe slow-down in the foreseeable future.

The next big data points for New Zealand aren’t available until 25 January 2023 and 1 February 2023, and these are inflation (currently 7.2 per cent) and unemployment (currently 3.3 per cent), respectively. We suspect that calendar 2023 will see a decline in inflationary expectations and an increase in unemployment as the full effect of higher interest rates hits both the consumer and business alike. 

Other data points we can grasp which reflects economic activity is associated with residential housing prices, and the Real Estate Institute of New Zealand (REINZ) are timely in their analysis. 

In their latest house price index report, it seems the housing market nationwide is down 11 per cent in October 2022 on October 2021. However, it seems Auckland and Wellington have led the decline, with year-on-year falls of 14 per cent and 20 per cent, respectively. That said, there are pockets which are far worse, including Manukau City (Auckland), down 17 per cent; and Lower Hutt City (Wellington), down 27 per cent.

Interestingly, national sales volumes in October 2022 are down 35 per cent year-on-year and in Auckland the decline was 42 per cent year-on-year. Readers should remember October 2021, the peak of the market, experienced heightened activity.

 So, what happens where the average consumer thought their house was worth, say, $1.0 million and 12-18 months later it is being valued at around $800,000? 

For context, in Australia 3.5 million of the 10.5 million homes have no mortgage. A further 3.5 million homes are investment properties with a mortgage, and the final 3.5 million homes are owner occupied with a mortgage. 

I can only draw readers attention to the UK in the early-1990s when both the official cash rates and the unemployment rate exceeded 10 per cent – and around 1.0 million homes, or less than 5 per cent of the housing stock, fell into negative equity territory.  

I suspect the price decline in the housing sector will help promote an economic slowdown as consumers and businesses alike batten down the hatches. However, given the persistently low unemployment rates and relatively low interest rates, this slowdown will likely prove to be a flesh-wound compared with the Western World recession of the early 1990s.


Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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