Silk: The New York Reserve Bank may keep interest rates higher for longer as home prices rebound
Reserve Bank of New Zealand (RBNZ) Assistant governor Karen Silk said a strong housing market recovery could keep inflation going for longer, suggesting the central bank is unlikely to consider an interest rate cut anytime soon.
In an interview with Bloomberg TV, she said "in the near term, there are still some upside risks to inflation." The official cash rate (OCR) is on a slightly higher path, and we say we are likely to keep rates higher for longer. Probably the biggest driver of inflation is actually housing."
Rising home prices typically have a wealth effect, potentially boosting consumer spending and fueling inflation. The Reserve Bank of New York said this week it expected property prices to rise 3.6 per cent this year, a reversal of its May forecast of a 3.5 per cent decline.
On the outlook for house prices, she said: "We think the trend will be towards a gradual recovery, with rising debt service costs playing a part, despite a strong Labour market." And we think funding costs will continue to rise, which means mortgage rates will continue to rise."
On the main risks to the economy, she said: "One of the medium-term risks we face is global growth. What we're really looking at is the weakness in global growth, particularly in China (CHN). Can China really achieve the growth they are proposing?"
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