Political & Economic week that was: OCR cut again

All roads seemed to lead to the Auckland property market this week.

The Reserve Bank had a lot to say about it at its latest monetary policy statement. As expected, governor Graeme Wheeler cut the official cash rate a further 25bps to 2.75%, and indicated more cuts are to come.

The Reserve Bank is being deliberately coy here: one more cut is a done deal and barring a major economic shift will come in either October or December, but the Reserve Bank is a bit shy about cutting below that 2.5% point.

Partly this is because 2.5% was its last low point: it is also because the Reserve Bank is nervous about stoking up the Auckland property market any more.

“Dangerous territory” is how Mr Wheeler termed it to a Parliamentary select committee on Thursday afternoon. That was stronger words than he had used earlier in the day in his quarterly monetary policy statement.

However, the more the Reserve Bank governor and his deputies talked on Thursday, the more nervous they sounded about the economy.

It was an intriguing shift: the monetary policy statement itself, carefully laid out and worded as always, projects a marked slowdown from the central bank’s previous outlook, but still points to positive factors such as the fall in the exchange rate and its help to exporters, along with the strong returns from meat and wool and a particularly bumper year for tourism.

But as they talked at the press conference, and then to MPs at the finance and expenditure select committee that afternoon, the worry lines grew deeper.

Certainly the government has not missed the message: Finance Minister Bill English, speaking this morning, noted that any market which has seen the kind of annual growth the Auckland property market has had over recent years inevitably has a correction.

The government is banking on a mix of its tax measures plus the Reserve Bank’s loan to value ratio (LVR) rules causing some levelling off, at least in the market. 

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