• Vince

NZD fell sharply after government's tax policy announcement yesterday

There’s been a significant financial market reaction to yesterday’s government announcement of a package of measures designed to restore balance to the NZ housing market.

Wholesale interest rates fell a decent 6-8bps as investors deduced that an end to the house price upturn – and attendant economic headwinds – would allow the RBNZ to maintain its ultra-accommodative policy stance for longer. The OIS-implied timing of the first OCR rate hike was pushed back into the second half of 2022.

Our recent call that the momentum under house price inflation had likely peaked. However, yesterday’s announcements – particularly the removal of deductibility on mortgage interest ­­– will further discourage investor participation in the market. This means it’s now likely that house price inflation will slow at a faster rate from here than our prior forecasts allowed for, and the risk house prices experience outright falls later in the year has increased. Meanwhile, there will be additional pressure on rents to rise.