Westpac predicts house price boom but no more OCR cuts

Westpac economists believe this month's Official Cash Rate cut could boost house prices by 7%, but they do not expect further cuts to follow.

Saturday, May 11th 2019, 8:26AM

Westpac economists previously predicted the Reserve Bank would cut the OCR twice, once this year, and again next year. Yet the bank's team of economists have changed their mind, and now believe rates will be on hold until 2022.

Most economists, including those at ANZ and Kiwibank, expect the Reserve Bank's Monetary Policy Committee to cut the OCR once again this year.

However, Westpac economists, led by Dominick Stephens, say the government's recent move to rule out Capital Gains Tax, coupled with an expected house price boost from the OCR cut, will strengthen the economy.

The economists said: "The RBNZ itself is 50/50 on whether another OCR cut will be required, meaning some form of downside surprise would be required to actually prompt a cut. At this stage, we don’t think there is a high likelihood of that happening."

They added: "Beyond the coming few months, our view remains that evidence of a strengthening economy will scotch any thought of cutting the OCR."

The economists predict a huge boost for the New Zealand property market following this month's OCR reduction, with people able to borrow more at lower rates. Westpac's one year special is down to 3.89%, and its two year special down to 3.95%.

They said: "There is no longer any reason to think the housing market is going to slow in 2020. Far from it. We now expect house price inflation to accelerate to 7% by mid-2020, due to the recent sharp drop in mortgage rates."

The economists added: "Our revised view that the housing market will accelerate over the coming year, rather than decelerate, has removed the rationale for forecasting an OCR cut in 2020."

Tags: OCR OCR forecasts Westpac