BREAKING: The Reserve Bank Just Surprised Everyone

The Reserve Bank just surprised everyone, leaving the Official Cash Rate (OCR) unchanged at 2.75%. In this episode, Ed and Andrew share why the Reserve Bank broke with expectations and where the OCR could go next. You’ll learn: What the Reserve Bank decided to do with the Official Cash Rate Where interest rates could go next When the next hike could come Sign up to Ed’s monthly Property Market Newsletter hear https://www.opespartners.co.nz/property-market-report ⁠ https://www.speakpipe.com/PropertyAcademy Let us know your thoughts by leaving us a voice message on the Property Academy Hotline⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.speakpipe.com/PropertyAcademy For more from Opes Partners: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.opespartners.co.nz/newsletter-sign-up⁠⁠⁠⁠⁠⁠⁠⁠⁠Stay ahead of the NZ property market⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.opespartners.co.nz/private-property-sign-up?utm_source=podcast&utm_medium=promo&utm_campaign=pp_signup ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Instagram⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.instagram.com/opes_partners/ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TikTok⁠⁠⁠⁠⁠⁠ https://www.tiktok.com/@opespartners

• 0:08Speaker 00

  Hello and welcome along to the Property Academy Podcast by Opes Partners. I'm your host, Tim McKnight.

• 0:12Speaker 01

  And I'm Andrew Niccol.

• 0:13Speaker 00

  And this is a show that helps Kiwis go from zero to five investment properties. So you could be financially free and stick around for the next 15 minutes because you're going to learn what the Reserve Bank decided to do with the official cash rate just yesterday, where interest rates could go next, and when the next hike could come. Now, Andrew, against almost everyone's expectations, the Reserve Bank decided to hold on to the OCR, leaving it at 2.75%. Did this surprise you at all?

• 0:42Speaker 01

  Well, actually, to be honest, I thought that the consensus was that they were going to hold. And maybe I just read one headline and formed that view myself.

• 0:51Speaker 00

  That sounds like you, doesn't it? He doesn't read past the headlines.

• 0:55Speaker 01

  Well, no, I've seen a lot of headlines now afterwards saying, you know, RNZ had Reserve Bank was set to raise the benchmark rate. That was this morning. And staff are now saying Reserve Bank keeps the OCR steady, defying expectations. So obviously, I am one person that wasn't surprised, but everyone else seemed to be. What did you think was going to happen? Because we didn't talk about it for once.

• 1:18Speaker 00

  Well, no, I think everybody expected an increase. If we look at market pricing, market pricing had a 95% chance of an OCR increase. So if we look at all of the traders and the banks, they were very surprised. I was reading some commentary this morning from some of my fellow economist friends, if I can call in that, friends and colleagues, and many of them were expecting an increase. So it was a bit of a surprise.

• 1:43Speaker 01

  It's always nice when the dumbs have the day.

• 1:45Speaker 00

  The dum-dums, is that yourself?

• 1:47Speaker 01

  Yeah, yeah. Look how happy he is.

• 1:50Speaker 00

  That reminds me, no, no, it just reminds me of one of the times, this would be about three years ago, right? Where Angela and I were having a bit of a debate about the OCR, was it going to go up or was it going to go down? Or it might have been inflation, something like that. And I said, I think it's going to be 3.7%. Throw it out there, just like every other economist, making a stab in the dark. Anyway, it came out at 3.7% and she thought I was a genius. Tricked her to marry me.

• 2:15Speaker 01

  Yeah, I know you well enough to know, the only reason you're bringing up your forecast is when you've got it right.

• 2:21Speaker 00

  Oh, 100%. I don't bring up the 95% of the time where I get it wrong. Now, if we look at why a lot of economists thought that the OCR was going to go up and why the Reserve Bank decided to do the opposite and hold it where it was. I suppose the argument for an increase is that our inflation is currently sitting at 3.7%. Now, that is a decrease from what it was. It was sitting at 4.1% the previous quarter. And while it's trending in the right direction, it is still outside of that 1 to 3% target band. And so typically, what does the Reserve Bank do when inflation's too high? They rack up interest rates. So we've got an incentive to save more, spend less, and ultimately inflation starts to come down. And the Reserve Bank has been

• 3:03Speaker 00

  signalling for a while that they want to take the OCR closer to 3 to 3.25%, which is around about neutral-ish, right? If we think about the neutral interest rate, where the Reserve Bank's neither trying to speed up or slow down the economy, it's all a bit of a guess of what that number really is. But 3 to 3.25% is roughly the long-term estimate. So that's where they're wanting us to go to. But at the moment, they're saying, hey, look, we're just going to take a wee bit of a pause, right? And look, I've just been on the Reserve Bank's media conference, finding out, you know, hearing it from the horse's mouth, not to call our Reserve Bank governor, Dr Anna Bremm, in a horse. I love her. I think she's just wonderful.

• 3:47Speaker 01

  Oh, you're in love with every Reserve Bank governor. You're such a floozy.

• 3:52Speaker 00

  Sorry, Adrian, I'm over you.

• 3:54Speaker 01

  Dead to me.

• 3:55Speaker 00

  But she was saying that they ended up taking a vote on it, and there was a decision taken, four votes to three, to leave the OCR where it is. The other three people wanted to increase it. And the argument there is that while inflation is still, and as I said, at 3.7% outside of the target band, it was actually lower than what they thought it would be. So they thought inflation was going to come in at 3.9%. It came in 0.2 percentage points lower than that. And so they said, okay, look, we're not seeing quite as much inflation as we thought. We have a little bit more breathing room. We can take a pause. Of course, one of the large impacts we were really worried about last time the OCR came out was that if we see these higher petrol prices, higher diesel

• 4:39Speaker 00

  prices, higher oil prices, will that flow through? Will businesses and business owners decide, hey, look, we need to increase our prices now because we've got these higher costs from the higher oil prices? Do we pass them through? The Monetary Policy Committee actually said, hey, look, we're not seeing as much of that pass through as we thought we were going to get. Maybe it'll happen, but since we're not seeing as much of it, hey, look, we can just take a wee pause. We'll see you in six weeks on the 9th of December, and we'll have a good old chit chat there. Maybe we'll see an increase. They have been signalling that, look, we are taking a pause, but don't take this

• 5:20Speaker 00

  as we're never going to give you an OCR increase. We think it's probably coming, but it's an uncertain world out there. Just give us six weeks and we'll come back and talk to you.

• 5:29Speaker 01

  Yeah, I kind of been thinking about that. As I was drafting my private property newsletter today to go out, I was thinking about the fact that actually, we currently feel like we've got quite a lot of instability. You know, we've got the midterms next week, we've got the New Zealand election next week. We've got, you know, higher inflation. And actually, our economy's pretty fragile. Like, it is growing again, and it has been since, you know, we were in a recession, kind of first two quarters of last year. But unemployment is back up at 5.6%. But there are some good things and some bad things. Like, the good news is that we are saving more. Like, aggregate saving is 3.7%, which is up from the 10-year average of, can you believe it, 1%, which, I mean, you

• 6:14Speaker 01

  know, again, probably shows that people are just taking it pretty cautiously.

• 6:18Speaker 00

  Well, that's exactly what they are pointing out, right? Because if you are feeling uncertain about your job because unemployment is high, if you're feeling uncertain about your greatest asset, which is your house price, so if you're in city in Wellington or Auckland or lower hut, and your house value's gone down, at least from what it was five years ago, even if it's up on what you bought it, you're not feeling as wealthy as you used to be. And actually, I was just on the phone to Miriam Bell from Stuff, and she was like, Ed, were you surprised by this? And I was like, yes. But then flicking through the Reserve Bank governor's slides before she even got up on stage, because they release those early.

• 6:55Speaker 01

  Really? You had a sneak peek?

• 6:57Speaker 00

  She was talking, when I was looking at my sneaky peeky, and then looking at the media conference, she was talking about the fact that house prices are down, and so we don't get that wealth effect where you have a rising house value, and then you feel a bit richer, so you take out a little top-up mortgage and go and buy yourself a jet ski or a boat or whatever makes you happy, right? So we're not seeing that. And in fact, if we break down what's happening with GDP, our exporters, very happy. If you're a farmer in Southland, you're having a great time at the moment. Our dollar has fallen to such an extent where, once you convert what you sell back into New Zealand dollars, man, you're doing pretty well if you're an exporter. If we're looking at

• 7:39Speaker 00

  business investment, leading the charge, doing pretty well. Household consumption, which is the bulk of the economy, right? People going out and spending, that has not really increased over the last year, right? We're saving more because we feel uncertain. So if you own a local cafe, if you own a butchery, you own some sort of local business that is serving domestic customers, New Zealanders, you're probably not doing as well as a tractor salesman down in Invercargill, who's selling to farmers who are shipping the milk powder offshore and living it up. So I was saying to Miriam, the journalist on the phone, hey, look, your bars in Auckland and Wellington

• 8:23Speaker 00

  probably aren't that full at the moment because we're all a bit cautious. I'm sure they're cracking open the tupees down in Southland at the moment, though. That's not offensive, is it, Andrew?

• 8:32Speaker 01

  I don't, I don't, I don't know. I don't know anymore what's offensive or not.

• 8:36Speaker 00

  Well, funny you should mention that, because I was going through the Spotify comments this morning, and I saw there was one who's got an issue with you.

• 8:46Speaker 01

  Oh, yeah? Take your number.

• 8:48Speaker 00

  Because, I never knew this, but some people find the phrase lipstick on a pig to be offensive and sexist.

• 8:57Speaker 01

  Sexist? What? I find it sexist that they're assuming that I don't wear lipstick on the weekend.

• 9:05Speaker 00

  Well, to be fair in the comment, they did say only women wear lipstick. And I'm like, have you been, have you been to Becca? There's a lot of guys in there wearing lipstick these days. It's a whole new world.

• 9:15Speaker 01

  Brian Ashburden, 67, do you just need to, need to come into the new generation of fashion?

• 9:22Speaker 00

  Well, do you know what? Cause then I started Googling it last night. I know I'm going way off topic, right? Is that phrase sexist? And it turns out that Barack Obama got in trouble for using it back in like 2008. And John McCain, who he was going up against in the election was like, that's sexist. Then it turns out that he'd used the same phrase three days earlier. So it turns out, world, that apparently it's not offensive, according to Google, but.

• 9:47Speaker 01

  Yeah, and these phrases, like, yeah, if that's the biggest worry of your life, you've got a pretty good life.

• 9:56Speaker 00

  Please keep listening to the show though, we love you. And look, just speaking about, about, about lipstick on an ed, we'll call it. While I was on the phone, I've got no idea how that's the transition, but I needed a segue to get back to the data. I was just on the phone to Miriam, the journalist from Stuff, about the wealth effect. And I was talking to her about, back in 2024, the Reserve Bank was thinking about bringing in the debt to income ratios. And one of the reasons why they wanted to bring that policy in was they were saying that if you have an economic downturn, so recession and a property downturn at the same time, the property downturn can have the effect of prolonging the economic downturn.

• 10:40Speaker 00

  So if house prices are going down at the same time, the economy's tanking, it's gonna make the economy much, much worse and mean that it takes more time to recover. And so I was just reflecting on that, being like, well, that's effectively what the Reserve Bank is talking about here. Households, they're cautious across most of the country, your house value is down. Maybe that's one of the reasons why the economy is feeling like it is sluggish, which actually to some degree made me quite thankful for the debt to income ratios in that it might mean that next time we have a property downturn, it might not be as bad as the one that we've just gone through. Now, having said that, God, I've been going on, we were just having a chit chat off here, Andrew, about the uneven property market recovery.

• 11:24Speaker 00

  And you were telling me just before about some investors that you were working with, who are a bit surprised about what's going on around New Zealand.

• 11:31Speaker 01

  Yeah, so it's funny because I feel like we get so much news and we've got so much access to information now that often things get lost. And also, as we've said on the show before, the bad news headlines get the most attention, which is just, that's just the way human nature works. And these investors that I work with, they invested in Auckland at the peak of the market. Markets come down, they get that, but also their house is in Auckland. And so that's come down as well. Now overlay that with exactly what you're saying before, he's self-employed. So the income has been a bit more challenged this year. People aren't spending as much with them because it's a, it's a type of service that you can choose to turn off when your other people's business is slowing down. It's kind of get like this triple whammy.

• 12:14Speaker 01

  And so he gets that this is just cyclical and he's got to ride it out. But it feels all bad news to him. And when we're just having a general chat, I said, it's funny because, you know, lots of people piling into the South Island at the moment because of the recovery. And he said, what recovery? And I was like, oh, Christ, which is basically where it was at the peak of the market. You look at places like Invercargill's gone mental. He's like, how come no one reports on this? And I was like, no, they do. It's just that often we don't see them and probably they don't get reported on as much. Because again, not as exciting for people and they're probably less likely to get the clicks. But that in itself, knowing actually there is some recovery happening, it's just not in Auckland yet.

• 12:57Speaker 01

  Even though that doesn't affect him, mentally it did because he's like, well, that gives me quite a lot of comfort then, okay. This is probably just a case of waiting it out.

• 13:06Speaker 00

  Well, it's interesting you mention it because I just put together my property market report, my monthly report that goes out, which is actually quite cool, by the way, because I think this is the only one in New Zealand where you can tick a box and say, which data do you want? So if you live in Southland, I'll just send you all of the Southland data every month. Or if you live in Tasman or like Marlborough and Blenheim, I just send you the Marlborough data or whatever you want. Now, maybe producer Dave, if we've got time, we'll drop a link down in the show notes where you can sign up for that. But what I've had a go at is determining which markets are hot and which ones are cold and which ones are balanced in New Zealand at the moment. And I'm looking at not just whether house prices are going up or down, but also how many sales are happening compared to usual.

• 13:48Speaker 00

  And also how many listings are on the market compared to the number of sales? So if I look at Canterbury, for instance, I'm calling it a bit of a hot market at the moment because while house prices are only up 3.1% over the last year, we actually have not that many listings on the property market compared to the number of sales happening. There's about 17 weeks of inventory, which means that if not a single additional property was listed, it would take 17 weeks before we had no properties left. Now that is below the long-term average of 21 weeks and there's quite a lot of sales happening. If I compare that to say Manuatu Wanganui as well, I'm calling that a balanced market,

• 14:30Speaker 00

  even though property prices were still down 2.4% over the last year. We've got a recovery of sales, quite a few sales happening there and inventory's relatively low. So if you want to get that kind of data, just sign up to my newsletter, not Andrew's one, not his private property that comes out every week. My one, so that you can sign up to get the data that you want as well. Does any of that surprise you or anything standing out to you there, Andrew?

• 14:54Speaker 01

  No, because I, I do think the surprising thing to me, in all honesty, was that this investor was so shocked. And it's because we, on the other hand, are looking at this, these kind of numbers in the, in the raw form on a daily basis, because that's just what we do. And so maybe that's given me the comfort in the market that, you know, again, other people need to have sometimes. And again, that doesn't, that's not to say everything's rosy in the market. No, it's terrible. It's lipstick on a pig, but if you, but.

• 15:21Speaker 00

  It's not lipstick on a pig, you've misused the phrase.

• 15:24Speaker 01

  It's pig on a pig, but it will get better.

• 15:28Speaker 00

  Hey, this poor commenter is going to think we're making fun of them when actually I earnestly sat there at 9.30 at night Googling to make sure that we hadn't done, done something wrong for them, right? And look, if you want to, I mean, I'm about to have people troll me, but if you want to, if you want to make me think weird things at 9pm at night, you can leave us a comment on Spotify.

• 15:50Speaker 01

  Oh, wonderful.

• 15:51Speaker 00

  About all of that, but this will just be Andrew's take everything.

• 15:53Speaker 01

  If you'd like to see lipstick on an ed, all you need to do is put ed in the comments and we'll do it if we get a hundred.

• 16:01Speaker 00

  We won't. Last time we did something like that, I got a tattoo. And over the last 15 minutes, you've, yeah, that's true. And so did you. But over the last 15 minutes, you've learned what the Reserve Bank decided to do with the official cash rate, where interest rates could go next and when the next hike could come. Right, let's wrap it up there, but please don't forget to rate, review and subscribe to the podcast. Really does help us get the message out to more people.

• 16:30Speaker 00

  Thanks for listening to the Property Academy Podcast. I'm your host, Stephen Knight.

• 16:34Speaker 01

  I'm Ed Jurnickel.

• 16:35Speaker 00

  We're going to be back here tomorrow with even more daily strategies, tactics and insights to help you get the most out of the New Zealand property market. Until next time.