Housing outlook muted as RBNZ keeps stimulus-friendly stance
At its 18 February review, the Reserve Bank (RBNZ) kept the official cash rate (OCR) on hold at 2.25%, signalling it is prepared to sit tight while inflation drifts lower and the recovery slowly broadens across the economy.
Annual consumers price inflation rose to 3.1% in the December quarter, slightly above the Monetary Policy Committee’s (MPC) 1–3% target band. The committee said headline inflation is “most likely returning to the target band in the March 2026 quarter”, and stated: “The Committee is confident, however, that with significant excess capacity in the economy, inflation will fall to around the mid-point of the target range over the next 12 months.”
Recent price pressures have been driven by higher tradables inflation, particularly larger increases in volatile items such as food, international airfares, and overseas accommodation. Non‑tradables inflation has also been held up by administered prices set or heavily influenced by central or local government, including electricity lines fees, university fees and vehicle licensing fees, though the bank expects less inflation from these components over the coming year.
Spare capacity and a “nascent” recovery
Growth is described as being at an early stage, with strength in export prices and regional agriculture still doing much of the heavy lifting.
Economic activity began recovering over the second half of last year, with GDP rising 1.1% in the September quarter after a 1% fall in June, although the bank cautions that the Q3 print may overstate true momentum.
The committee noted that “the economic recovery has been uneven across sectors and regions”, but added that there are signs activity is spreading into manufacturing, construction, and parts of retail. The committee noted that there was still significant spare capacity in the economy and estimated the output gap at -1.5% of potential GDP in the December 2025 quarter.
Labour market conditions are slowly stabilising: the unemployment rate has risen to 5.4%, but key employment measures strengthened in the December quarter, and the Bank expects the labour market to firm as the recovery broadens through 2026.
Policy to stay accommodative as global risks linger
With markets closely watching the Bank’s forward guidance, Westpac chief economist Kelly Eckhold described the updated OCR profile as more dovish than market pricing, noting that while RBNZ has pulled forward the possibility of a late‑2026 rate hike, it still sees only a limited chance of an increase by year‑end and keeps the door open to a 2027 “lift‑off”.
Westpac continues to expect no further policy easing this cycle and sees the timing of a return to more neutral OCR levels depending on how quickly activity and inflation firm over 2026 and into 2027.
On the policy outlook, RBNZ reiterated that “members agreed that the monetary policy stance would need to remain accommodative for some time to support a sustained recovery in economic activity.” The Statement also restated that “if the economy evolves as expected, monetary policy is likely to remain accommodative for some time”, with its published track showing the OCR “remain around its current level in the near term, before gradually increasing from late 2026.”
Domestic financial conditions have tightened since November, with the New Zealand dollar trade‑weighted index appreciating and longer‑term wholesale interest rates moving higher. Banks have passed some of this through to fixed‑term mortgages, even as the average mortgage rate has declined to about 5.1% amid a surge in 1–2‑year borrowing.
Globally, the bank notes that the world economy was more resilient than expected in 2025, with strong investment in artificial intelligence technology supporting exports from Asian trading partners, even as trade barriers, geopolitical tensions and uncertainty around China keep risks elevated.
Housing and banks: slow grind, no stress
For housing, the message is one of patience rather than a pivot. RBNZ expects house prices to be flat over 2026 and to rise only modestly in 2027, reflecting a larger housing stock, tighter debt‑to‑income limits and cautious buyers.
Reflecting that cautious tone, Cotality chief property economist Kelvin Davidson said “it’s difficult to see a sharp turnaround for activity or prices until jobs growth picks up and the unemployment rate falls more emphatically.”
At the same time, measures of domestic financial stress have eased, non‑performing housing loans have declined, and the bank sees “no material trade-off” between meeting its inflation mandate and maintaining financial stability.
For now, the bank is signalling steady rates, an accommodative stance, and a slow march back toward a more neutral setting – all contingent on how growth, jobs and inflation actually evolve through 2026.
Stay informed with the latest housing market trends and mortgage insights — subscribe to our free daily newsletter.
