WELLINGTON ¨C For decades, New Zealand has relied on inflating the housing market to engineer a recovery during downturns, but the playbook has failed this time, putting policymakers ?in a quandary just as the Middle East war adds a new layer of uncertainty.
Even after the Reserve Bank of New Zealand aggressively slashed the benchmark interest rate from 5.5% to 2.25%, house prices still languish some 20% below their pandemic peak, dismantling the wealth effect that long anchored the economy.
The war compounds the problem, with oil price inflation pushing up borrowing costs globally, potentially forcing the RBNZ into a more hawkish stance even with the economy in the worst shape ?since the global financial crisis.
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