Fine balance for Wheeler

Wheeler announced this morning that the official cash rate would remain at 2.5% at least until the end of the year.

He signalled the bank’s ongoing concern about house price appreciation in Auckland.

“House price inflation is high in some regions, despite prices already being elevated. The bank does not want to see financial or price stability compromised by housing demand getting too far ahead of supply.”

But he also acknowledged the impact of fiscal consolidation and the summer’s drought on the economy.

Mark Lister said it was an unenviable position to be in.

“They don’t want to increase interest rates because if they do that will push the currency up and the currency is causing them issues.”

Outside Auckland and Christchurch, there was barely any house price movement at all, he said.

“They want to target the Auckland market but they can’t do that without hurting the rest of the country.  They’ll talk about [raising the OCR] and  threaten it but they will be really reluctant to increase it at all at this point.”

Lister said the bank would be more sensible to deploy macroprudential tools such as loan-to-value restrictions.

“An increase in the interest rate would be quite a negative for the economy.”