How housing reforms could impact interest rates

The Government's radical housing market reforms could mean lower interest rates for longer, according to Westpac economists.

The bank's team of forecasters say the Government's new measures to keep a lid on the housing market, such as sweeping new curbs on investors, could impact the economic recovery. 

"Economic activity is already below trend as a result of the Covid outbreak. And now with a material softening in the housing market looking probable, the recovery in demand is likely to be even more gradual," the economists, including Michael Gordon, said.

With a less certain economic outlook, the Reserve Bank will be less minded to raise the official cash rate, the Westpac team said.

"This reinforces our expectations that OCR hikes will remain off the cards for the foreseeable future."

Gordon and co predict that the central bank rate could fall even lower to help the economy through the expected rough period.

"Indeed, more monetary easing might be needed to support the economy through the transition phase, and a negative OCR is still a possibility."

The Westpac team expect low interest rates to "limit the downside" for house prices in the near-term. 

Following last week's bombshell announcement by the Government, the NZ dollar fell sharply over the past week. The Westpac team said the fall indicates "the reduced likelihood of OCR hikes".

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