Reserve Bank deals fatal blow to New Zealand house prices


The Reserve Bank of New Zealand (RBNZ) today hiked the official cash rate (OCR) by another 0.5% – the third consecutive double rate hike. This took the OCR to 2.5%, up from the record low 0.25% in August 2021.

In announcing the decision, the RBNZ proclaimed that it “is resolute in its commitment to ensure consumer price inflation returns to within the 1 to 3 percent target range”, and committed “to maintain its approach of briskly lifting the OCR until it is confident that monetary conditions are sufficient to constrain inflation expectations and bring consumer price inflation to within the target range”. 

Importantly, “the Committee remains broadly comfortable with the projected path of the OCR outlined in the recent May Monetary Policy Statement”, suggesting the RBNZ’s hawkish ‘forward track’ guidance of a 3.9% OCR by September 2023 remains in play.

In coming to its decision, the RBNZ noted that “spending and investment demand continues to outstrip supply capacity, with a broad range of indicators highlighting pervasive inflation pressures”. Employment also “remains above its maximum sustainable level and the Reserve Bank’s core inflation measures are around 4 percent”. And only “once aggregate supply and demand are more in balance” can “the OCR… return to a lower, more neutral, level”.


Finally, the RBNZ indicated that it wants New Zealand house prices to return to “sustainable levels”, suggesting it will keep hiking rates in order to assist in the adjustment:

Financial conditions have continued to tighten with mortgage rates rising in response to, and in anticipation of, increases to the Official Cash Rate (OCR). Asset prices, including house prices, continue to decline. Members agreed that the increase in mortgage interest rates will assist to bring house prices more in line with sustainable levels.

In summary, the RBNZ’s aggressive monetary tightening is set to continue, which will place further strong downward pressure on New Zealand house prices. Moreover, the RBNZ views falling house prices as a ‘good thing’ that will help to return valuations to more sustainable levels.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.