The Reserve Bank of New Zealand (RBNZ) will be announcing their latest decision on rates this Thursday morning.
The issue is not what they will do as everyone knows they will leave rates unchanged (anything else would be a shock and the last thing the RBNZ wants to do right now is to shock the markets!).
Instead an interesting current issue for Alan Bollard is the balancing act he now has between ensuring the residential property market doesn’t re-ignite while also trying to keep the currency at reasonable levels.
Ironically the global financial crisis has helped the RBNZ in their efforts to re-balance the economy away from property and in a relatively smooth fashion. The last thing the RBNZ would have wanted is a property crash as the economic impact of this can be devastating as has been seen in the US and parts of Europe.
Instead there has been a slow, steady decline (after adjusting for inflation) in most NZ residential property markets over the past few years while the NZ dollar had been relatively weak, therefore helping our exporters. This is exactly the combination the RBNZ wanted.
However, this mix seems to be changing with the dollar going up recently as well as some signs of life in parts of the residential property market. The latter is happening despite the very low level net immigration levels – usually we need 20,000-plus new net people coming into the country to boost the property market and currently the net immigration levels are slightly negative for the past 12 months.
Of course the RBNZ can take the steam out of the property market with an interest rate rise or two but that could then lift the kiwi dollar further. This is another reason to leave interest rates unchanged on Thursday.
The RBNZ must be happy for the Government to put in place further policies to move investment away from property. The next step in this process could be to change the Auckland urban / rural boundaries. This is an obvious area for National to look at in an effort to decrease the high land costs in the wider Auckland property market.