Reserve Bank keeps cash rate consistent
Interest rate announcements have a been a pretty common thread through decisions about residential property investment in New Zealand over the past few months – and this looks set to continue. The Reserve Bank of New Zealand (RBNZ) announced that the official cash rate would remain unchanged at 3.5 per cent for another month – and in a move that might surprise lenders and investors nationwide, has completely ruled out any future 90-day interest rate rises for the next two years.
Alongside what's happening in the rest of the world, Governor Graeme Wheeler noted that the local economy is also tracking along consistently. Low petrol prices are giving businesses and households a boost in spending power, while strong employment and building sector are supporting economic development. Investors hoping for a bit of a boost this month might be a little disappointed, but Mr Wheeler pointed out that the housing market is a bright spark in the economy.
It's an interesting predicament – while the bank has made noises about reigning in the Auckland housing market, Mr Wheeler said, for the time being, the bank's focus is on keeping inflation in check at 2 per cent. Prices are showing little sign of slowing down in the short term, as Auckland's median house price has surged 14 per cent over the 12 months to February, according to the Real Estate Institute of New Zealand.
"However, there are a number of factors weighing on domestic growth, including drought conditions in parts of the country, fiscal consolidation, reduced dairy incomes, and the high exchange rate," he said.
In fact, the bank's March policy statement outlined that the rate of inflation is much lower than it anticipated back in December. While the bank's December announcement forecast the 90-day interest rate to increase by 80 basis points, it has backpedalled. Instead, it has adjusted its forecast down by a surprising 70 basis points, which would keep them unchanged at 3.7 per cent until March 2017.
Interest rates might stay steady for while to come, but it's good to stay vigilant. That's why an Authorised Financial Adviser, like us here at Goodlife, is such a good move. We can help you sort through the policy jargon and cut straight to what this means for your investment portfolio.
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