Forex Flash: Wheeler eyes mounting inflation amidst record housing prices – UBS

Data released overnight showed that regional house prices in New Zealand hit yet another record high in February – house prices in Christchurch and Auckland were amongst the worst affected. Building consents are rising too, recently hitting levels last seen just before the Global Financial Crisis struck when the overnight cash rate was 8.25% (not today's level of 2.5%).

RBNZ Governor Wheeler has already fretted publicly about surging house price inflation, and such concerns were enough to give January's policy statement a distinctly hawkish bias: "House price inflation has increased and we are watching this and household credit growth closely. The Bank does not want to see financial stability or inflation risks accentuated by housing demand getting too far ahead of supply."

According to Research Analyst Gareth Berry at UBS, “On the back of these data overnight, there is every reason to expect similar hawkish overtones from the March Monetary Policy Statement when it is released on Thursday. Ultimately, the house price issue could be addressed to some degree through the use of macro-prudential measures. These will eventually allow the Bank to exert some regulatory control over borrowing and lending practices. But these tools are still in development and are untested. That's one reason why our NZ economist expects an RBNZ rate hike in September.”