By Bernard Hickey
The Reserve Bank of New Zealand has held the Official Cash Rate (OCR) at 2.5%, as expected, but it has lowered its forecast track for the 90 day bill rate because of a worsening in the outlook for global growth and commodity prices.
The Reserve Bank now expects the 90 day bill rate to be stable at 2.7% until mid 2013 before rising just 60 basis points to 3.3% by the end of 2014, and a peak of 3.4% in early 2015.
The 90 day bill rate is typically 20-30 basis points above the Official Cash Rate.
Although the Reserve Bank’s forecast is not a forecast of the OCR, its 90 day bill rate forecast implies the OCR will remain on hold until June 2013 at least and that the first OCR hike is not expected until then, or the September quarter of 2013.
Before today’s June quarter Monetary Policy Statement (MPS) bank economists had been forecasting the Reserve Bank would increase the OCR in the March quarter of next year.
The Reserve Bank lowered its forecast 90 day bill track significantly from its March quarter MPS. That forecast saw the 90 day bill rate rising from the December quarter of this year and peaking at 3.6% by the December quarter of 2014.
Today’s forecast implies a six month delay in OCR hikes and a peak that is around 20-30 basis points lower than the last forecast.
“New Zealand’s economic outlook has weakened a little since the March Monetary Policy Statement,” Governor Alan Bollard said in his second-to-last MPS as Governor. He is due to retire at the end of September.
“Political and economic stresses in Europe, along with a run of weaker than expected data, have seen New Zealand’s trading partner outlook worsen. Furthermore, there is a small but growing risk that conditions in the euro area deteriorate more markedly than projected in the June statement. The bank is monitoring euro area developments carefully given the potential for rapid change,” Bollard said.
“Increased agricultural production and the weakened global outlook have driven New Zealand’s export commodity prices lower. The resulting deterioration in export incomes, although partially offset by depreciation in the exchange rate, will weigh on economic activity in New Zealand,” he said.
“Offsetting these negative influences, housing market activity continues to increase, supported by recent reductions in mortgage interest rates. In addition, repairs and reconstruction in Canterbury are expected to substantially boost construction sector activity in coming quarters. Aggregate GDP growth is projected to pick up slightly to just over 3% next year.”
“Given this economic outlook, inflation is expected to settle near the mid-point of the target range. It remains appropriate for monetary policy to remain stimulatory, with the OCR being held at 2.5%.”
27 Comments
Zirp forever! - just like balanced budgets - I think not. A rude awakening is on the horizon - these guys are paid to lie to us and collect the borrowed dosh - that is why rates remain low, so the taxpayer will not squeal and thereafter the rating agencies.
Time to enact a bit of financial reality I think and get back to real business.
Well Bernard...was it worth the trip...? was it up close and personal..?...is there a new Mantra to follow ..wait n see wait some more..as nauseum...?....is he still fairly relaxed about the levels of private debt.....?
I don't take you for much of a drinker Bernard, but you may as well start because your paying for a floorshow and nobody's dancing.
Bolly...living proof of grossly remunerated redundancy.
He wasn't excited Alex ....Bernard double posted it to save having to print the same old announcements next time.......honestly Bolly could use a dummy with an on board recording if it wasn't for his doughnut fetish after the gig.
RBNZ actually living out the Groundhog Day scenario......stuck in a moment.
Central Bankers trying to stop deflation?
Online petition for those opposed to asset sales.
"Offsetting these negative influences, housing market activity continues to increase, supported by recent reductions in mortgage interest rates"
this says it all really - a reinflation of the bubble in Akld and Canterbury is seen as a positive by the RBA. Can Bollard get it in his head that we are having a downturn BECAUSE of stagnation caused by household debt burdens and the previous bubble deflating. The only way to cure this econonomy is to raise rates and discourage lending (lets face it, the only lending these days is for housing so business activity will not be affected) and wait for houses to become sensibly priced at which point new households can buy in with a moderate mortgage that allows enough discretionary income left over to spend in the economy. Its so freaking simple ... it will just hurt some people a bit thats all.
I guess it depends on whether the "decoupling" phenomena described here (in the year 2000 note) comes to pass;
http://www.economics.harvard.edu/faculty/friedman/files/decouplingmargin.pdf
Note specific ref to NZ in the closing argument.
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