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RBNZ seen keeping OCR at 2.5%, but dropping ‘low till late 2010′ promise
October 23rd, 2009
Economists expect the Reserve Bank of New Zealand (RBNZ) will drop its ‘low till late 2010′ expectation for the Official Cash Rate (OCR) at the next rate announcement on Thursday, October 29, as markets increasingly predict rate hikes in the first half of next year.
However, the OCR is widely expected to be kept on hold next week at its record low of 2.5%.
Higher than expected inflation figures in the September quarter and jumps in both consumer and business confidence since September have markets pricing in a hike in the OCR as early as January. An official rate hike by the Reserve Bank of Australia earlier this month also sent markets the message that the RBNZ may raise rates earlier than indicated.
Export and industry groups have been calling on the RBNZ to cut the OCR further or at least keep it at its current level for fear the New Zealand dollar will rise if the OCR is raised. However, RBNZ Governor Alan Bollard this week said there was not much the central bank could do to control the currency, Businesswire reported:
“We don’t want to see the New Zealand dollar being put under unnecessary pressure again,” Bollard said. “If and when we were to increase rates would you see that impact on New Zealand dollar? No, actually the markets already think quite a long way ahead of where we see monetary policy.”
He also warned that the bank couldn’t intervene without taking longer view to the consequences of its actions.
“You shouldn’t be short-term overactivist and then regret it in the medium term,” he said.
The RBNZ said at the end of April it expected to keep the OCR at or below its current level until the latter part of 2010:
We expect to keep the OCR at or below the current level through until the latter part of 2010. The OCR could still move modestly lower over the coming quarters.
It reiterated this expectation in its June statement, in July and in September.
However, economists think the statement may have done its job and run its course, leading some of them to forecast the RBNZ will drop the phrase.
Here is what ASB’s economists wrote:
The economic outlook has improved considerably over the 6 weeks following the September MPS. The sheer volume of stronger than expected developments will see RBNZ strongly reconsider both the economic outlook and the appropriateness of an OCR at 2.5%. Included in this stronger data are upward revisions to the global outlook, gathering momentum in house price inflation, stronger than expected Q2 GDP, inflation pressures unwinding slower than expected, and very sharp lifts in consumer and business confidence. However, the continued rise in the NZ dollar provides offset to the improvement in domestic demand.
We expect the RBNZ to remain on hold at the October OCR review, but drop the statement that it expects “to keep the OCR at or below current levels until the latter part of 2010”. Given recent developments, this statement will no longer be seen as credible, its time to rewrite the policy outlook part of the statement. We expect the RBNZ to remain on hold until April 2010, with the view the RBNZ will want to confirm and be confident growth has become sustainable before lifting the cash rate. We expect initial rate hikes to be aggressive (50 basis point steps) to promptly lift the cash rate off emergency settings.
Here is what Westpac’s economists had to say:
Our view is that the RBNZ will take some time before acting to remove its stimulus – partly because they’re not yet fully convinced that the recovery is secure, and partly because they will want to signal a change in tack in a way that doesn’t cause the market to react violently. We expect that next Thursday’s statement will be the first step along that path, by jettisoning the last vestige of an easing bias and removing the expectation that rates will remain “at or below current levels through until the latter part of 2010”.
In its stead they will probably have a phrase akin to “the OCR can stay at a low level for a considerable period of time”. The end goal is a gradual tightening cycle beginning in Q1 next year.
BNZ economists said Thursday’s statement was crucial, with market expectations for the OCR “so far ahead of the RBNZ’s own expectations”:
(The markets are) fully expecting a first hike in the OCR as early as the January meeting next year, and 200 basis points of hikes over the next twelve months. The next big test for market expectations is, of course, the RBNZ’s OCR review, next Thursday. With market pricing so far ahead of the Reserve Bank’s own expectations, this is shaping up to be a crucial announcement. The problem for the Reserve Bank is that any sign of wavering from its “lower for longer” mantra, could be seen by an already giddy market as implicit validation of market expectations. On the other hand, to continue to suggest the OCR will remain at its current level (or lower) until the end of 2010 strains credibility, in the markets’ collective mind, if nowhere else.
For the record, we don’t favour either extreme. Instead, our long-held view is something of a happy compromise, of tightening from the middle of next year.
Here is Bernard Hickey’s take on what the Reserve Bank might do on Thursday.
Tags: Alan Bollard, Interest Rates, OCR, Official Cash Rate, RBNZ, Reserve Bank of New Zealand
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October 23rd, 2009 at 7:28 pm
Looks like it is the Main Street Banks that are driving the interest rates and the Reserve Bank is simply following their lead. What a role reversal in 3 years ?
October 23rd, 2009 at 8:43 pm
Why would he raise it now? The banks have done job for him and raised rates anyway.
October 23rd, 2009 at 8:52 pm
Such an unbalanced economy, on a micro level bad news all week with clients…when rates do increase more than blood in the water.
October 23rd, 2009 at 9:27 pm
Exactly phil, what difference does it make anyway?
October 23rd, 2009 at 10:06 pm
I just don’t understand. If the RBNZ is about to begin a tightening cycle it will damage export returns even further. So if the exporters won’t be fueling the recovery that many are claiming is under way, who or what will be?
Are we going to borrow more money and do it with housing?
Perhaps we are hoping commodity prices will go through the roof again to offset the strong currency?
October 23rd, 2009 at 10:39 pm
This is the problem all central banks have.
Until Japan, USA & UK raise their interest rates, the carry trade will flood any country that raises their interest rates with liquidity.
If that economy isn’t on its knees, that liquidity will cause inflation.
Increasing interest rates will increase inflation.
The question whether the OCR affects anything but short term rates.
October 24th, 2009 at 10:16 am
Im glad Bollard has admitted they have no control over the exchange rate. The theory that high interest rates = high dollar and visa versa has proven to be false. The reality is its controlled by speculators who focus on price changes not yeilds. Maybe he will focus on what he can control – household debt. The sooner he raises the OCR the better, the risk of a full on depression has passed but it will come back again with vengance if household debt starts rising again which it has started to do. He has to send a strong message to the public that taking on even more debt for housing and consumer spending has to stop because they haven’t got it yet.
October 24th, 2009 at 10:37 am
Kieran : True . And someone needs to send a strong message to the P.M. , Jelly Key , that we cannot wobble to the next election . Fiscal reform is needed now . Bolly and Wild Bill appear to ” get it ” ( and not before time ) . But the public will not change their behaviour , not until the regulations and tax mix alter . The public are smart , they use the existing rules to best personal advantage . Which is why property debt continues to rise .
October 24th, 2009 at 12:59 pm
I agree Roger, I think Bill is getting there, but Key needs to get a bit more serious about things.
Starting with reining in these continual blowouts we keep seeing from the public sector, which in some cases is still living in this dreamland.
If I was Key I’d tell the head of NIWI you can forget about your 30% pay rise, and I don’t care when it was negotiated, and also if you don’t like it go somewhere else.
I seriously doubt he is that indispensable at all.
Same goes for these other high up managers in the public service, getting huge pay rises, when the general staff are lucky to get 2% or even to still have a job.
October 24th, 2009 at 1:12 pm
@phil & Roger, what they get is interesting, However, like most in the 39% bracket, it be even better to know what they actually take home and how much property investment, LAQC sheltering helps reduce the actual effective tax rate and if that rate is similar to those who might only cop the the 2%’s – that is, Joe Average. That is the people subsidising far too many 39%’ers un-taxed wealth generation. Funny that, eh?
October 25th, 2009 at 11:40 am
Need a system like Norway. Total Disclosure.
October 25th, 2009 at 8:18 pm
FX markets have returned to the bad old ways and Governments and Central Banks still have not learned the need to radically rethink monetary and fiscal policy to stop absurd levels of volatility in their currency, which destroys any chance of builiding long term export orientated jobs and wealth in manufacturing and industry. New Zealand needs to escape from low productivity growth, high consumer indebtedness, ever increasing current account deficits, and the anglosaxon love affair with property as the source of easy prosperity. New Zealand’s debt to GDP is almost 100% through years of living beyond its means, compared with less than 60% for the USA.
Fiscal policy should ensure that cheap money goes into productive investment, not inflating house prices. This requires rare leadership by politicians to make unpopular decisions for the long term good of the country and future generations.
October 25th, 2009 at 8:24 pm
@ angus,
You may like to read and join in the discussion on the subject matter;
http://www.interest.co.nz/ratesblog/index.php/2009/10/23/opinion-why-new-zealand-needs-to-follow-singapores-example/
October 25th, 2009 at 9:54 pm
Re jacko
Here’s an article relating to your statement.
http://www.stuff.co.nz/national/2998145/spotlight-to-fall-on-tax-dodgers
October 26th, 2009 at 4:27 am
Trudy, many thanks for that pointer. Yes, some good discussion.
October 26th, 2009 at 10:40 am
What an absurdly sick situation where the RBNZ under Bollard has set out to pork market activity with cheap credit and as a result home affordability returns to the worst situation it was ever in. Bloody madness Alan Bollard….stop with the stupid policies and tell the country the truth. You know dam well the banks are using the situation to flood credit into the market and that they are targeting the home mortgage market, sucking in an increasing number of fools to higher debt when wages are set to fall and taxes to rise. What the hell does it take before either you or that image maker, John Key, will do what should have been done by Labour way back in 2005. Throttle the bloody credit supply to housing and accept the reality of a property price fall. The longer you set out to mislead the public into believing it is possible for a grossly indebted economy to avoid the consequences of several years of insane splurging stupidity….the worse the fall will be. As for you John Key and your useless bloody Cabinet…stop protecting the banks and the party faithful and the property speculating mps…get on with doing what has to be done…OR BUGGER OFF.
October 26th, 2009 at 10:46 am
Eloquently put, as always Wally!
And this from across The Ditch on what they see of our monetary policy:
“…the RBNZ will …..reiterate the commitment to keep rates unchanged till later in 2010. Not something ….. even remotely credible, but (they won’t) change their tune until they are backed into a corner – which ….will be by early next year…”
http://www.businessspectator.com.au/bs.nsf/Article/SCOREBOARD-The-genie-returns-pd20091026-X6S95?OpenDocument&src=sph
October 26th, 2009 at 10:48 am
Labour in 2005-08 were alike Alan Greenspan pre his retirement , they didn’t want to do the tough stuff , ‘cos it would look bad on their record . Political expediency won out over good policy . So now , National and Fuzzy Bernanke respectively , must clean up the appalling mess bequeathed to them . Their predecessors could have staunched the bubbles , when they were smaller , but were gutless to do so . That is your legacy , Helen / Michael , and Alan G . Gutless wonders !
October 26th, 2009 at 10:56 am
And as a country we recognised we needed to change, and voted for it…What happened?! Oh, We get to wait another 2 years to be told what the Master Plan is. Pathetic.
October 26th, 2009 at 11:03 am
In fact , Harriet , I have been corrected on this point too , National and Jelly Key campaigned on the premise of no change . They did a ” me too ” to all of Labour’s major bribes ( WFF , interest-free student loans , etc . ) . They were too scared , after Don Brash’s 2005 defeat , to directly oppose Labour . But they did let us keep our incandescent light bulbs ……….. That should cheer us all , in lieu of economic reform !
October 26th, 2009 at 11:14 am
I guess I’m referring more to the popular notion that after “X” amount of time in office, it was about ‘time for a change’ that got National in, as much as any undertakings they did or didn’t make.
Besides, I read somewhere that JK emphatically stated at his intreview to take up the job at Merrill Lynch , London, that the interviewer said” If you haven’t performed after 12 months, you’ll be out”, to which JK responded ,” If I haven’t performed after 11 months, I’ll resign”
How things have changed.
October 26th, 2009 at 11:37 am
Take heart , Harriet . For one , Wild Bill appears to understand the awful state of the Gumnut accounts , and of our unbalanced property-ponzi economy . And the Nats have not been hammered in the polls over the ACC fiasco . Goffy can shut up , ‘cos Labour lied ; they did not disclose the state of ACC’s incompetence in it’s affairs and portfolio . Some competition may enter the scene . ……… . And Barack Obama has given Federal Gumnut aid to stem-cell research . So there is a glimmer of optimism that Jelly Key may grow a backbone yet .
October 26th, 2009 at 11:54 am
Wild Bill ( nice phrase, Roger!) becomes more John Howard-esque every day, and Jelly Key, more Andrew Peacock-ish – nice chap; nice smile; etc.
Give it a bit more time, and I wonder if we’ll see a similar spill.
October 26th, 2009 at 12:05 pm
Wally,
Agree, John Key needs to get his A into G. There are promising comments from Bill English, but I wont hold my breath. The sad irony is that now even labour say they are open to a CGT on property. Where the hell were they for 9 years as they presided over the biggest bubble in our history?????????
October 26th, 2009 at 12:07 pm
Roger,
Barack should never have given aid to creating humans for medical experimentation and later destruction. I’d have to say thats one area I always respected Bush for. Obama is a fraud and largely a sop to liberal causes.
October 26th, 2009 at 12:21 pm
They are only multi-cellular entities , several hundred cells , not true foetuses . Not at all recognizable as a being . They are not created for experimentation , they are unwanted , to be aborted anyway . And if you were a paraplegic , I bet that you would be singing a wholly different tune ………But encouraging that you can find something nice to say about Bush Jr.
October 26th, 2009 at 12:45 pm
Roger, we are all cells mutli cellular entities if you want to take that approach – where do you draw the line as to when human life begins. For my part, conception seems the only logical choice albeit not the most convenient.
in any event, I think the whole issue is fast becoming redundant as most value can be obtained from adult stem cells.
October 26th, 2009 at 1:08 pm
Bush was an Idiot, is still an idiot and presided over the biggest theft of all times.
Therefore he will go down in History with Adolf as the LEADER who had the biggest impact on the 21st century, as Adolf did on 20th Century.
In their own way both have caused misery and destruction on a major portion of the Worlds population and will have an on-going impact for years to come.
Probably apt, that .. thinking about it….21st Century….ie…. CENTURY21…a major player in REAL ESTATE around the globe.
Who would have thought that REAL ESTATE was not so real for many, but the dosh was thrown at em, so they had to take it. Same here as in the USA & UK.
The humble quarter acre is now virtually unaffordable to the masses here in NZ, without dual incomes and artificially low interest rates.
Continuing the saga….Maybe the RICH Obama fueled Millionaires left in USA Finance can be lured here to take up a holiday home or two to finally remove all possibilities.
That will be KEY to the plan, in PLAIN ENGLISH. Gotta keep up the RORTS.
October 26th, 2009 at 1:23 pm
Seen Bush Junior in the ” Harold and Kumar ” movie . He had some awesome marijuana . In a sense , Bush Senior had an amazing dope , too .
October 26th, 2009 at 2:01 pm
I would not hold Bush responsible for the housing market. He did not appoint Greenspan, and Clinton’s policies helped those who could not afford on to the ladder. And lets not forget that the US had one of the more mild housing bubbles. Leaders both labour (NZ, Britain) and right (Aus, US) oversaw this bubble and did nought about it and for the most part continue to do nought. Ditto for banking regulation, handouts etc. In fact, Obama is being walked over by Wall Street and has quadrupled Bush’s handouts.
Personally i think Bush was unfarily maligned because lets face it, the press/intelligentisia is left leaning. You only have to look at Obama’s nobel prize nomination after 8 days in office – that SPEAKS VOLUMES!!!! Bush has not had a major terror incident since 9/11 and personally I would feel safer with somone of his ilk when it comes to facing the increasing militaristic belligerance of China that will only grow over the coming decades.
October 26th, 2009 at 2:18 pm
If the banks are raising interest rates on their own why does the RBNZ need to do anything.
October 26th, 2009 at 2:40 pm
@ Shorts – well said. Spot On.
Is there any reasons or guidelines that the banks are required to follow RBNZ’s OCR or its movements? does anyone know?
Do the banks borrowing from RBNZ? anyone knows?
October 26th, 2009 at 3:20 pm
That is true, it never started with just one person, but Bush was the largest idiot, had a coupla terms recently, as did Hell-en and Labour under Broooown’s guidance in UK to actually do something about the Finance and Real Estate Rorts as well as the Fiscal Blow-outs.
To say they didn’t see it coming is to deny all sane & sensible ADVICE.
The Mandate today has to be even more radical to counter the rort process, which is still being perpetuated in the name of each Government concerned. And it is not just those mentioned.
It should be a simple process these days to tell a SCAM, a RORT, A theft from the unwary, but when the STATE does it it compounds that THEFT, by its own supposed leaders.
I am all for a level playing field, not a CROOKED one.
Why does the innocent BAIL-OUT the profligate, not penalise the crooked politicians and finance manipulators by right of LAW.
Because the LAW is WRONG. The Rules are Wrong. The intention is WRONG.
More so than ever these days.
This has to be changed to PROTECT the CITIZENS..not the POLITICIANS and FINANCIAL manipulators, often called BANKs & our own FED…the RBNZ.
For instance, By definition a BANK can Rort someone by changing the rules on BANK ACCOUNTS at whim. The rates change at whim, The Cross-rates are manipulated by sheer GREED, the point of it all is to STEAL from the UNWARY.
We have one chance as citizens of the WORLD to get it right for the next Generations, cos unless we do, the con-iving will not cease.
That chance is NOW, HERE, TODAY, THIS INSTANT, not tomorrow.
KEY, ENGLISH, Obama, Brown, etc etc,….et al, were the problem, are the problem, not the solution.
Only by a rise of awareness by the PEOPLE, CITIZENS, whatever you want to call the bulk of the worlds population will a true level playing field develop.
We have to FORCE change upon the very people who should be MANAGING it in OUR interests.
We have LOST THE PLOT guys.
I do not want another CROOK or IGNORANT IDIOT to be involved with making decisions at MY/OUR expense.
It should be LEADERSHIP BY DO AS I DO, NOT DO AS I SAY & MISS-LEAD.
RESPECT is earned not BOUGHT.
We need CHANGE.
END OF RANT….and SHOUTING.
WAKEY, WAKEY CITIZENS.
October 26th, 2009 at 4:04 pm
Good to hear, LOSER.
No more capitals or ranting, please.
October 26th, 2009 at 4:44 pm
Sore-Loser : Ooooh honey , you have so much pent up energy . You’re like a big balloon , all squidgy and ready to pop ………….. Slip a little lavendar oil into your bathwater , and relax ……….. Let us know if you need us to assist with your stress relief . Pip pip .
October 26th, 2009 at 6:08 pm
Warren & Tarquain: didn’t we share a bottle of Chardon at the Green Party Fund Raiser.
30$ raised that day.
Or was it the TUI at the National Party Jaunt Overseas with the educated one.
At both we spent more than we can ever raise.
I must stress….Seems par for the course.
Ray: I know when I shout it gets someone’s attention. A capital idea.
October 26th, 2009 at 11:11 pm
Near the end of 2010 Bollard will have to slash the OCR as by that time Stage 2 of the global crisis and our strong dollar will be kicking NZ in the guts like you have never seen before!
October 26th, 2009 at 11:17 pm
Interesting comment, why “near the end of 2010….” can you elaborate ?
October 27th, 2009 at 10:35 am
@Mike M, thanks for pointing out:
http://www.stuff.co.nz/national/2998145/spotlight-to-fall-on-tax-dodgers
in response to my comment 1.12pm on 24th. I await to be pleasantly unsurprised at any effective movement to stop the rorts. Nor forgetting that Labour came out with a similar half-hearted attempt to, supposedly, police mis-use of the ‘intent rule’, by increasing IRDs’ budget for such policing – but we all know the results of that. That’s the problem with substituting activity for effective policy – not much changes – just the way both Labour and National want it. Such will be the result of the TWG project – not much change.