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RBNZ to cut OCR 25 bps as exports see tough times and rates rise, ASB says
The Reserve Bank of New Zealand will cut the Official Cash Rate by 25 basis points to 2.25% on September 10, ASB economists expect. Recent tightening of monetary conditions, with both long term interest rates and the New Zealand dollar heading higher, would put pressure on the RBNZ to cut, despite reasons for the central bank to hold the OCR at its record low of 2.5%, they said.
As well as tighter monetary conditions and a high NZ dollar, ASB Chief Economist Nick Tuffley and Economist Jane Turner said the impact on exports had yet to be fully felt, with a lot of belt-tightening to come in dairying regions despite the recent news on the rise in milk powder prices. Tourism would also come under pressure with the end of the ski season, they said.
Weak credit growth and a loss of momentum in the housing upturn could also help lead to a cut in the OCR, they said, with credit to be further constrained by the phasing out of the retail deposit guarantee.
"We are tipping our hat to a 25bp cut on September 10, but we freely acknowledge that we are in a distinct minority in suggesting the RBNZ will cut," they said.
"Market pricing implies only a 10% chance of a cut. At the very least, the RBNZ is likely to try and reinforce that OCR increases are a lot further off than the market is pricing in. However, without action to accompany this stance, continued jawboning will fall on deaf ears."
Tuffley and Turner said the RBNZ may wish to hold the OCR at 2.5% following signs that the economic outlook is stabilising:
The global economy is stabilising. Over recent months, forecasts for global growth have been revised up, led by Australia averting recession and a strong bounce back in Chinese economic activity. Consensus forecasts now imply a slightly better global outlook than the forecasts incorporated in the June MPS.
Fonterra's on line dairy auction has shown encouraging signs that prices are recovering.
Related Topics
Business confidence has recovered substantially.
The housing market has lifted markedly off its lows and the increased level of demand is likely to remain underpinned by the pick up in net migration.
Retail spending data suggest consumer spending growth is already recovering and in our view won't be as weak over the next few years as the RBNZ has assumed.
The RBNZ may be reluctant to cut the OCR further, if only to reduce the risk of fuelling the household-led recovery which could slow the correction in NZ's external indebtedness.
However, there were reasons to cut, with risks to the inflation outlook remaining on the downside, Tuffley and Turner said, adding that the RBNZ needed to be wary that doing nothing would risk killing off the recovery when it remained fragile:
NZ monetary conditions are being dragged higher as global prospects improve, particularly as expectations for higher Australian interest rates get brought forward. New Zealand is experiencing a defacto tightening because of Australia's better economic outlook. An OCR cut would be a very clear-cut way of differentiating NZ's more precarious economic recovery from Australia's relatively robust performance.
Long-term mortgage rates are back to, or above, long-term averages. It is really only rates out to 2 years that are outstandingly cheap and can be thought of as stimulatory. Even then, these shorter rates have started to lift more recently as markets bet on the RBNZ tightening much sooner than the RBNZ implies it will.
The higher NZD is also contributing to tighter monetary conditions. The RBNZ has assumed for the past 6 months that the NZD will fall to a very low level and remain weak for several years. However, it has become increasingly clear that this may not be the case. The primary reason the RBNZ expected the fall was based on NZ's huge external financial liabilities. However, if those liabilities didn't cause the NZD to fall when the crisis was still fresh, why would they when the crisis is steadily on the mend?
The impact on exports has yet to be fully felt, in particular the strength in the NZ dollar will make any export-led recovery very difficult. The positive news from the dairy auction is primarily that there is less risk of Fonterra cutting the 2009/10 payout from $4.55. Even then, there is going to be a lot of belt-tightening in dairying regions. Tourism is under pressure outside ski tourism, and will remain under the gun.
Yes, the housing market is recovering. But the recovery to date is still weak. Sales turnover has lifted sharply, but the increase has lost some momentum since April and mortgage rates have now started to rise. Mortgagee sales numbers continue to rise. There is low risk that another OCR cut will trigger a huge mortgage lending boom.
Credit growth remains weak and symptomatic of a struggling economy. Mortgage lending data published by the RBNZ is running below an annual pace of 3%, by far the weakest pace on record. Consumer lending also shows little sign of recovering, having shrunk nearly 4% over the past year. Business credit demand is weak.
Inflation is likely to bounce around the bottom of the target band over the next two years, meaning the risks are skewed to uncomfortably low inflation. Wage growth has weakened earlier than the RBNZ has assumed.
The RBNZ's new liquidity policy will encourage banks to concentrate on funding via the more expensive but more stable sources: retail deposits and long-term funding. All else equal, this will put further upward pressure on lending rates.
Phasing out of the retail deposit guarantee scheme will further constrain credit provided by the non-bank sector, particularly consumer credit.
Tuffley and Turner said it is possible the RBNZ concludes the economy is on the mend and believes the tightening underway is warranted. "However, such an outcome seems unlikely given Dr Bollard's still-cautious comments over the past week."
"We expect the RBNZ still views the tightening in monetary conditions as undesirable. In July's OCR review the RBNZ said its forecast recovery was "based on a further easing in financial conditions" and could be at risk without that easing. Developments since then have been positive, but not enough to make up for the huge gulf between current monetary conditions and the RBNZ's outlook for them. At some stage the RBNZ is going to have to build in a substantially higher NZ dollar into its economic outlook than it has to date."
"The risk with cutting is that it may not have any lasting effect. But if the RBNZ is genuinely worried about overly tight monetary conditions it should act rather than hold back for any fears of being perceived as ineffective."
Why do I have this
Why do I have this picture of a flea trying to hold back an elephant heading for water.
If the flea had any brains it would climb up top and enjoy the ride.
I think it's time the
I think it's time the banks started to offer higher deposit rates. What we need to do is organise depositors and have them all remove their deposits from one bank starting in October. If we concentrate on the one bank they will be forced to raise or say goodbye to one huge % of capital. Ok guys, which bank?
Sorry Wally , the elephant
Sorry Wally , the elephant carked it . Cashin its chips as it were ! Wooly Bully Bollard gotta be seen to do something , 'cos he's on the big money . But whether rates go up or down , no one overseas is taking any notice of our reverse bank . Depositors need to do a " Borat " in a teeny plastic bag , and leave a deposit the local branch manager will never forget !
Does it seem like Groundhog
Does it seem like Groundhog day to anyone else, or is it just me?
Cashin....irony? Thats was a ASB
Cashin....irony?
Thats was a ASB sponsership...remember the little plastic cashin money boxes we all had and took to school for our weekly ASB savings?
X ans Y wouldnt know about that...Owell thats why they live on credit and dont have savings at all.
That's true Steps, and the
That's true Steps, and the Post Office ones were red and made of steel. They say there is one in a drawer somewhere with a 1930 Australian penny still in it.
Matt S, I thought to
Matt S, I thought to myself .... Is it April Fool's day?
matt S: everyday.....a new disaster
matt S: everyday.....a new disaster waiting to happen while I watch the mad ones just carrying on as if all is well....which planet do these guys live on?
regards
Steptoe - what age group
Steptoe - what age group carries the largest amount of dept in this country? Is it the X and Y's?
Of that age group how much of that debt is in financing the productive sector and how much is in servicing the flash houses, flash cars, beach houses, wine cellar? I am an X and I do not know that many peers carry the debt level of our parents. Those of my generation that carry debt is in the fact that they have brought their first and only house in the pre-2007 market. The wasteful spending I see in X and Y's is in the tens of thousands, the amount of wasteful spending I see in the BB is in the hundreds of thousands.
I am happy to accept numbers that prove my observations wrong, as they are that, only observations.
@Paul, agree, BB have wasted
@Paul, agree, BB have wasted just as badly if not more so....they also had a far cheaper or free tertiary education.
regards
Steven re BB-Thing was they
Steven re BB-Thing was they didn`t all figure they were university bound ,but "did" trades or went to work,paid taxes,rarely travelled ,and thru 60,70 80`s saved and educated their kids with more education.X and Y can now say,with "educated" sums to prove it ,that "it`s not my fault" .Will be interesting in 35 years to see if you`ve done as well for those following you,as your parents and grands did for you.
The problem is, I am
The problem is, I am on a daily basis trying to clean up the mess of the BB's. They educated me, put the laws in place, yet they are the ones that will not abide by them as "that was not the way we did things when we were younger" "there is just too much bureaucracy" "you can not tell me how to live my life" "why should I do what you say".
I hope that they cut the OCR, I hope that they loose lots of their "hard earned?" dollars as things come tumbling down and I hope that they get shafted by the same laws that they put in place. I hope that they do not get as much healthcare, or get too many skin cancers.
I hope that I get the chance to get some "hard earned" cash. I hope that I can try and change some of these laws which are costing us all soooooo much. I hope that I have an expectation of lower healthcare. I hope that I do not fight tooth and nail for a pension at the expense of my children. I hope that I take responsibility for my actions and not try to pass them off to my children. I hope that I pay heaps of tax rather than avoid it or hide it coz that means I get the other 2/3rds. I hope that salary earners do not have to cover the tax that I will not pay via my company/family trust/complex financial structure.
All that seems to matter is that we shaft one and other and try and make sure that our own lot in life is better than the guy next to us.
Lower the OCR and keep the gravy train coming!!!!!
Paul, sounds like your date
Paul,
sounds like your date with karma isn't going the way you would like it to.
Current OCR of 2.5%. OK.
Current OCR of 2.5%. OK. Much better than, what was it.. 8%?... well within living memory.
And a cut of 25 points? OK.
Hands up those currently borrowing at 3%. What, no one out there?
4%? No?
5%? Surely?
6% Ah, thank you. A few lucky people in the back row.
Now, can the monetary experts tell me precisely what will be achieved by cutting the OCR 25 points?
It would be a pointless
It would be a pointless gesture. Noddyland will dance to whatever tune the suppliers of credit demand when the Treasury asks for other people's money to balance the budget for the next decade at least and probably longer than that. Thanks to most western economies being bloated with debt, the cost is likely to reach record heights.
This is one of the approaching storms.
This is a warning !!!!
This is a warning !!!!
http://news.theage.com.au/breaking-news-business/one-in-five-cant-afford...
Hey Paul, I couldn't give
Hey Paul,
I couldn't give a toss what he does to the OCR.
I will still enjoy living in my mortgage free million dollar home and my yacht will still be good to spend the whole summer on.
I am so happy I was born a BB. It has been soooo easy......
Have retired at 45, who cares about the pension or the OCR.
My average return from Term Deposits is still 7.45%, OCwhat?
Gosh " we are stuffed
Gosh " we are stuffed " : How I wish that I was so clever and cool and groovey as you are . I would be a smug tosser too . But I'm not ! A regular working stiff am I . If I was so totally brilliant like you , I wouldn't waste one iota of my valuable time on these tuggers , at this web-site.............Why do you ?
@ Paul go down to
@ Paul
go down to bunnings, placemakers, mitre 10, the warehouse or where ever and grab yourself a mirror, then take a good long look at the miserable git staring back at you.
Rog, you go down to
Rog, you go down to bunnings with him, buy some cement and get hard.
This site is very entertaining. I do get a bit sick of the X and Y's moaning about their lot all the time though.
I have just got back from 2 months holiday in Asia. The poor buggers where we visited have no welfare and work for $1 a day. You X Ys dont know how good you have it. Stop moaning and pull your fingers out.
we are puffed : Dude
we are puffed : Dude , I'm a BB . And the boss is a filippina . I know poverty , live with it every annual leave . Your point ? ( no offence , man )
point is that Paul was
point is that Paul was nutting off how hard he has it. No one in NZ has it hard. Paul being jealous of a few BB and hopin they get cancer is ridiculous.
Fair do : Until you
Fair do : Until you travel to genuine 3'rd world countries , you have no idea of how fortunate we are . Anyone grassing off at us , or the yanks , oughta take a sojourn to the Sudan/Afghanistan/Bogota/Ethiopia......you get the picture ! ( Cheers . )
mirror purchased.....currently looking at a
mirror purchased.....currently looking at a stunning hunk of a young man with the world at his feet.
From my reading of this site over the last few months, I see lots of X and Y bashing, I am just pushing back.
I know how good I have it, the BB and their selfishness keep me in work. I went to Uni for 5 years, worked all the way through it. Worked all summer holidays and paid my small student loan off in my first year working. I got two degrees and even had the priviledge of going to the scholarships officer only to be told, sorry mate you are a white boy between 18-35, got nothing for ya mate. However if you see any non-white males or females, or white males over 35, send them my way as I have not been able to give all my grants away this year.
Now 10 years of working in this country and others I call it as I see it. I do not have credit debt, I drive a 5k car with two babies in the back. My only debt is 1/3rd mortgage on my first home [335k] that my wife and I saved and saved for and purchased in Nov 2007 1 month before the arrival of our first born. Now you are sitting here shoving this stuff down my throat saying that X and Y's are all irresponsible and all live off credit etc etc.
Then I get the priviledge of going to work and having BB's saying day in and day out that are going to go bankrupt coz they signed up too much debt, or spent too much now that if I do not bend over and kiss their ....... that I am going to ruin their life........nothing to do with this fanciful credit that have being livng off over the last few years, or the fact that they can not take responsibility for their own actions, or inactions.
Yeah I am a bitter young man at this stage in my life. I work hard and pay my taxes, if I get a speeding ticket I do not lie through my teeth to get out of it coz....what harm am I doing etc etc, I say sorry and man up about.....and I take my medicine.
I know I have it good and I know I have earnt it. So the flinging of stereotypes will be meet with stereotypes being flung back. The sort of demographic that would even read this type of site points once again to the root of the problem in my opinion
About time I got off my soap box I think.
Apologies to anyone that I have offended, but hey, maybe my reaction might be indicative of something?
.....now where is that gorgeous man in the mirror
Stuffed: The point about the
Stuffed: The point about the cancer was it was not X and Y's that put holes in the ozone layer, X and Y's are not the ones that have created the greatest CO2 emissions [so far, but I am sure we will get there when it is our turn]
Guess what, I have been to Uganda, I have been to Congo, I have seen the slums of Nairobi with my own eyes. I have seen people stealing insulation fluid out of a transformer in order to pay for food for the family, hoping that they are not the ones that will get electrocuted if they take too much. But hey, I am just a kid right? What do I now?
not sure what you "now".
not sure what you "now".
Gotta pack.....boat is waiting:)
I appreciate your superior intelligents
I appreciate your superior intelligents for picking up my spelling mistake. The whole point of english is to communicate a message, I apologise if my message was lost by that mistake and that it became too hard to understand.
We are stuffed, would you mind telling me how you made your money? I am always keen to learn.
Stop bullying each other while
Stop bullying each other while the Banks are laughing all the way to .. ehm. Anyway, the OCR cutting are for them banks. Not us.
If OCR is cut then
If OCR is cut then those on floating mortgage rates will be pretty happy
If the OCR is cut
If the OCR is cut nothing will happen to mortgage rates because we borrow our money overseas and overseas they don't care about no friends bollard and the NZ reserve bank.
Hell we could cut OCR to 0% and it still wont effect rates, the rate curves are all sending a pretty clear signal that rates are set to rise.
Hey Paul good on ya
Hey Paul
good on ya mate! I agree with what you have to say however most of my fellow Gen Y and X's all wanna buy the flash $500K+ first home. However they can't because they have no deposit as they all went overseas and pissed it up in the UK. Like you I settled on a $340K first home in the suburbs in 2006. Mortgage free now + added $100K of extensions to my non-leaky brick and tile place. I have been lucky enough my parents and close business mentors who are all BB's have given me the advice and knowledge not to follow the majority of my Gen X and Y peers. I now have a million dollar property portfolio and $50K share portfolio. I too drive a 4K car with 2 kids in the back.
Keep giving it heaps Paul. Don't follow the pack of Gen X and Y who are more interested in spending and keeping up with the Jones' etc.I myself read this blog everyday and have learnt heaps from all the contributers.
My humble opinion: house prices in Auckland will stay static or slightly rise this year and begin to rebound in the 1st quarter of 2010 as the economy recovers. We need a slow steady rise in house prices for it to be sustainable and so we can slowly increase rents to maximise our returns.
The OCR has proven itself a useless tool. Bollard is just playing shop window and politics. Long term rates are rising. To my fellow Gen X and Y's: buy a modest house now. Get off your high horses and get on the ladder
Cheers
My input for what its
My input for what its worth,
Robert Burns 1785
Small, sleek, cowering, timorous beast,
O, what a panic is in your breast!
You need not start away so hasty
With hurrying scamper!
I would be loath to run and chase you,
With murdering plough-staff.
I'm truly sorry man's dominion
Has broken Nature's social union,
And justifies that ill opinion
Which makes thee startle
At me, thy poor, earth born companion
And fellow mortal!
I doubt not, sometimes, but you may steal;
What then? Poor beast, you must live!
An odd ear in twenty-four sheaves
Is a small request;
I will get a blessing with what is left,
And never miss it.
Your small house, too, in ruin!
It's feeble walls the winds are scattering!
And nothing now, to build a new one,
Of coarse grass green!
And bleak December's winds coming,
Both bitter and keen!
You saw the fields laid bare and wasted,
And weary winter coming fast,
And cozy here, beneath the blast,
You thought to dwell,
Till crash! the cruel plough past
Out through your cell.
That small bit heap of leaves and stubble,
Has cost you many a weary nibble!
Now you are turned out, for all your trouble,
Without house or holding,
To endure the winter's sleety dribble,
And hoar-frost cold.
But Mouse, you are not alone,
In proving foresight may be vain:
The best laid schemes of mice and men
Go often askew,
And leaves us nothing but grief and pain,
For promised joy!
Still you are blest, compared with me!
The present only touches you:
But oh! I backward cast my eye,
On prospects dreary!
And forward, though I cannot see,
I guess and fear!
Fabulous, Andrewj! The second reading
Fabulous, Andrewj! The second reading of your post made me smile.
AndrewJ Brilliant. I just love
AndrewJ
Brilliant.
I just love it that I work on a site where our commenters quote Robert Burns to make a point about housing. You've brightened my day.
cheers
Bernard
Sun is shining and that
Sun is shining and that stunning specimen of a man was still looking back in the mirror this morning.
Unfortunately Andrewj I could not get the mental picture of you standing in a kilt with an ale in your hand reciting poetry, but appreciate it anyway.
28 year old - Things must be a bit different in Auckland, as it is certainly not that way out here in the provinces. Good luck with your business and all the best success to you.
Obviously need to stop working for a salary and become a business man.
Bernard - any chance of some numbers on personal debt carried by cohort before and after this little shin dig of recent years?
Surely dropping the OCR does
Surely dropping the OCR does have some effect? Rates have gone from 8-9% to 5-6% after all.
Even if dropping the OCR by 25 points doesn't translate into the banks dropping their floating rates by 25 points it will clearly signal that;
a) rates rises are further away then some people think, and
b) when they do start to rise they will be rising from a lower base so therefore will place pressue on how much the bank raise their rates to (even if they don't lower their own rates).
interest rates are too low
interest rates are too low now
they should be allowed to increase ti boost savings and to grow investment capital
You will find this ASB
You will find this ASB fluff is aimed at harvesting some deposit loot cheap from the locals. Scare em into thinking dep rates will fall because Bollard will cut and they will rush in with their savings to grab the 3% on offer. Plain truth is the ocr is now a useless "rusty tool". Wonder how Bill's getting on with begging for money!
Thanks for the compliment Bernard,
Thanks for the compliment Bernard, Ive always been a fan of Burns and it just came to my mind this morning, the last chapter sums up the difference in views on the site,experience isnt always an easy partner.
Wish we could go back and give our children a classical education.
Still you are blest, compared with me!
The present only touches you:
But oh! I backward cast my eye,
On prospects dreary!
And forward, though I cannot see,
I guess and fear!
^^^28yr old and Paul, nice
^^^28yr old and Paul, nice to see some others in my age bracket doing well, I'm 32 and daily drive a 4k car although have a few classics too. Went to the UK, pissed it up but worked for a developer for 2.5 yrs and brought back a wad of pounds. We can all learn from the BB's, most worked hard all their life and some got rich without really trying too through property. (one relative had several rentals and was only trying to have mortgage free for retirement income without cap.gain) Most of friends couldn't care less about investments, drive a 30k ticked up car and have a 42" tv, Im looking forward to retiring at 50.
Good on you BuyerInch. I
Good on you BuyerInch.
I am 45 and at the end of the BB group.
My wife and I married young, bought property at 19 years old and worked hard to pay it off. No kids, drove HQ holdens and went camping for holidays.
I must admit that over the years our rental properties have helped but saving and living cheaply has always been the best way to get ahead.
When I turned 44 I sold my business. The wife had already retired. We now live on our investments (no rentals anymore). We live on less than 30% of the investment income and reinvest the rest to TRY and keep up with inflation.
Most of my friends are BBs and most of them will never be able to retire. Just because we lived thoughout a time of rising house prices doesn't necessarily mean all BBmers are going to be rich. Most of them earn a dollar and spend $1.10 and never bothered to save.
I think that for a young person today that there is just as much opportunity out there.
Easy to make excuses.
By the way Buyerinch, I still drive a $5k toyota and my 29 inch TV is 15 years old at least.
I look up to people
I look up to people like you (^^^stuffed), take a few calculated risks, see opportunities through changing markets etc. Dont think I will be bothered with rentals or tenants when I retire either lol