By Roger J Kerr
Another week gone by and the local interest rate market are back into debating how the NZ economy will perform this year and that in turn will determine the timing of OCR increases later in the year.
Predictably, the RBNZ Governor was not as downbeat on the 2012 economic outlook last week as the benign picture being painted by the majority of local economic forecasters.
The monetary policy prescription come June/September time will be determined by two sets of economic information:
Backwards looking:
What was the GDP growth in the December 2011, March and June 2012 quarters?
If the outcomes are higher than RBNZ and market forecasts (I think they will be) the RBNZ will be re-thinking the economy and associated inflation risks.
Forwards looking:
GDP growth forecasts for 2013 will be revised higher when it is seen that the European recession has not dragged Asian and US growth down.
As always, the handbrake on the strong growth outlook will be the NZD exchange rate level.
Consistent rates above 0.8000 against the USD this year will constrain export performance for sure.
Therefore, the new RBNZ Governor coming into office in September will have some tricky decisions to make about the inter-relationships of interest rates and the exchange rate on the NZ economy and thus monetary policy prescriptions at that time.
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* Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com
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