RBNZ Silk: Housing the biggest upside risks to inflation

RBNZ Assistant Governor Karen Silk said today, “Near term, there are still some risks on the upside to inflation.” She further identified the housing market as a significant factor, mentioning, “The OCR track is slightly higher and we’re saying potentially retaining rates at a higher level for longer. Probably the biggest driver of that is really housing.”

The bank’s recent projections indicate that OCR could reach its peak at 5.59% by mid-2024, and then slightly pull back to 5.36% by early 2025. This revised forecast surpasses earlier predictions laid out in the previous Monetary Policy Statement.

Silk expressed uncertainty regarding how the stability observed in the housing market, combined with a potential recovery next year, might impact inflation.

“We are looking at it as a gradual resumption in house price trend,” Silk elaborated, “but in an environment where labor market pressures continue to ease and at the same time you’ve got a higher interest rate environment.”

Additionally, Silk pointed out broader concerns beyond the local scenario. “One of the medium-term risks for us is global growth,” she said. Expressing a keen interest in international trajectories, she added, “We’re really focused on global growth and in particular how weak is China. Is China really going to be able to deliver the growth that they’re suggesting?”