There's possible bad news for mortgage holders, with further interest rate rises potentially on the cards.
The Reserve Bank today kept the official cash rate on hold at 5.5%, the fourth time it had held the rate steady.
But inflation remains high, so further rises may come early next year.
And inflation was at the top of the agenda when the Reserve Bank Governor sat down with the new government yesterday.
The Reserve Bank today held the OCR at 5.5%, and indicated it could lift it again if inflationary pressures are stronger than expected. (Source: 1News)
"We have a routine process meeting in advance of the Monetary Policy Statement to talk about the outlook for the economy," Adrian Orr told media today.
"The vibe in the room was incredibly constructive and highly focused on the job at hand. Our number one job is to reduce inflation."
Spending per household is dropping — but with more people in the country, demand is not dropping fast enough.
Domestically, while food and oil prices have fallen, housing and construction costs remain stubbornly high.
In the Reserve Bank's statement today, it said wage growth is easing, labour demand is softening and inward migration is increasing the population and adding to labour supply.
"While population growth has eased supply constraints, the effects on aggregate demand are becoming apparent. This is increasing the risk of inflation remaining above target," it said.
"The Committee is confident that the current level of the OCR is restricting demand. However, ongoing excess demand and inflationary pressures are of concern, given the elevated level of core inflation. If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further.
"The Monetary Policy Committee agreed that interest rates will need to remain at a restrictive level for a sustained period of time, so that consumer price inflation returns to target and to support maximum sustainable employment."
Prime Minister Christopher Luxon said it was "incredibly disappointing" to see the Reserve Bank signal it may need to raise the OCR.
It was down to "economic vandalism on a scale not seen before" by the previous Labour government.
To help fight inflation the new government would set about reducing spending.
CoreLogic's chief property economist Kelvin Davidson said the chances of "reasonable falls" in shorter-term mortgage rates in the next 12 months were reduced.
"Accordingly, new borrowers will continue to face challenges in terms of satisfying serviceability testing, while many existing mortgage-holders will still need to budget for higher debt servicing costs when their current loans reprice over the next year or so. These pressures are likely to keep a lid on housing market activity and prices, especially if a few more job losses did start to come through."
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