Reserve Bank expected to warn dollar too high

Westpac has announced it will no longer take any new applications from investors with a deposit of less than 40 percent (file)
Westpac has announced it will no longer take any new applications from investors with a deposit of less than 40 percent (file)

The Reserve Bank (RBNZ) will release a special economic update at 9am Thursday, and the markets are predicting it will signal another interest rate cut is on the way.

The RBNZ is expected to warn that the New Zealand dollar is too high and inflation is too weak.

The kiwi was trading at 70.20 US cents, 93.94 Australian cents and 53.40 British pence at 7am Thursday. Although the kiwi has eased in recent days it is still higher than exporters would like, or the RBNZ had predicted.

Weak inflation and a high dollar are usually a recipe for an interest rate cut. But the red-hot property market had cast doubt on that. Any cut to rates could further fuel house prices.

That is why the Reserve Bank went ahead on Tuesday and announced plans to toughen up the lending rules for investors.

From September, most loans to property investors will require a deposit of 40 percent. The will still be able to make 5 percent of their investor loans to people with a lower deposit. But in practise, they will stay well below that threshold.

Already Westpac has announced it will no longer take any new applications from investors with a deposit of less than 40 percent.

The tougher lending rules are seen as opening the door to a rate cut. The markets are pricing in a 75 to 80 percent chance the official cash rate (OCR) will be cut next month by 0.25 percent to 2 percent.

The RBNZ is also expected to have more to say about the housing market, the dairy sector and global events like Brexit.

The special update is being issued today because the RBNZ has changed the timetable for its OCR announcements. That meant there was a longer than usual gap between monetary policy statements.

Newshub.

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