The Reserve Bank of New Zealand has held the Official Cash Rate at 2.75 per cent, pausing after September’s increase. A rise to 3.00 per cent had been widely expected, so the pause is a surprise.
Inflation slowed to 3.7 per cent in the year to September, down from 4.1 per cent in June and below the Bank’s own forecast of 3.9 per cent. Petrol was the main reason for the slowdown, as it fell 6.5 per cent over the quarter. However, it is still 19.1 per cent higher than a year ago, and without petrol inflation would have been 3.2 per cent. Local costs like wages, rent and services rose 3.3 per cent, still above the Bank’s 1 to 3 per cent target.
The Bank is betting the fuel price shock fades before it spreads. With inflation below its forecast and the housing market already softening, it can afford to wait. The risk is that petrol prices have climbed again in recent weeks, which points to higher inflation in the December quarter.
Mortgage rates have already been climbing on expectations of a rise, and higher rates are still working through the housing market. More than half of buyers this year were first home buyers (29 per cent, the highest in our data, which starts in 2003) or investors borrowing to buy (24 per cent), the buyers who feel higher rates first.
The national median house price was $755,000 in September, down 2.3 per cent on a year ago. Sales fell 11.6 per cent to 5,752, while the number of homes listed rose 3.5 per cent, so buyers have more choice and sellers face more competition. Homes took a median 46 days to sell, three days longer than a year ago.
A hold does not mean the rises are over. At 2.75 per cent, the cash rate is below headline inflation and well below its 5.50 per cent peak of 2023 and 2024. Our analysis of 30 years of election data found that prices in election months rose by about the same as in ordinary periods (6.0 per cent against 7.0 per cent), so the market tends to follow rates and the economy rather than votes. The next signal comes on 9 December, when the Bank releases its next Monetary Policy Statement.