How are markets affected by RBNZ meetings and the Official Cash Rate?

Cutting rates

  • 1 March, 2015
  • RESIDENTIAL
  • Interest rate, RBNZ

The objective of any rate cut is to stimulate the economy by encouraging companies and businesses to borrow to invest in their growth. Growth in private investment would in-turn see demand for labour increase and boost employment and wages.  It would be a positive move for mortgage holders as it reduces interest repayment costs. However, on the flip side it also reduces income for savers that rely on investments such as term deposits.

Effect on property markets?

The initial effect of a rate reduction would be to boost mortgage affordability and in-turn lift demand for all property types. This move would have a positive effect on major property markets around the country. Another positive side effect of a rate cut would be the growth in the construction of new residential projects as investors and buyer demand rises for off the plan properties.

Keeping rates firm

The stability and attractiveness of record low interest rates has had a positive impact on property markets by boosting demand. It has also benefited the economy by driving building approvals and construction activity higher. These developments have created jobs.

Effect on property markets?

Keeping the cash rate stable would see demand for real estate remain elevated, as buyers continue to take advantage of the cheap mortgages on offer. Price growth will vary across markets, depending on where in the current cycle they sit and the strength of their relative local economies.

Increasing rates

One of the key reasons for the Reserve Bank to lift rates would be to contain property price growth. An increase in interest rates, however, would have seen the dollar increase in value and in-turn hurt export reliant industries.

Effect on property markets?

An increase in interest rates would slowly reduce buyer demand; particularly from investors as higher interest rates make other investment assets more attractive. It would also gradually see an increase in listing activity as property owners sell up to lock in the capital gains achieved during the current growth cycle. The combination of both of these factors would see price growth cool markedly.

LJ Hooker NZ

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