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Prices acquire extra importance

Economists are watching house prices with extra interest since it was announced that the Reserve Bank will now have to take asset prices into account in setting the Official Cash Rate.

It was announced last week that new Reserve Bank Governor Graeme Wheeler would be expected to adjust the OCR in response to over-heated or falling asset prices.

BNZ said this was an interesting development, given that there are imbalances with the housing market at the moment, including double-digit annual price inflation in Auckland.

Westpac said its view that house prices will increase 6.5% this year and 8% in 2013 would become particularly important.

“On our forecasts, by July next year accelerating house price inflation should be apparent to all in sundry. And, against a backdrop of inflation rising toward the top of the target band (we expect inflation to be 2.7% by mid-2013), and a Canterbury rebuild starting to hit its straps, we expect that the conditions required for the OCR hiking cycle to be kicked off will be met.”

Westpac said it was sticking to its forecast of July 13 for the first OCR hikes.

Tags: ocr


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