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BNZ economists say there is now a 'solid risk' the Reserve Bank might cut the Official Cash Rate as early as Wednesday; Kiwibank economists also say that's a possibility

BNZ economists say there is now a 'solid risk' the Reserve Bank might cut the Official Cash Rate as early as Wednesday; Kiwibank economists also say that's a possibility

BNZ economists are now saying there's a "solid risk" the Reserve Bank might cut the Official Cash Rate as early as Wednesday (June 26) and Kiwibank economists think that's a possibility too.

Most economists and market watchers expect that the central bank will hold fire for the moment and then likely cut in August.

However, in a BNZ Markets Outlook publication, BNZ senior economist Craig Ebert says in terms of recent economic development, "so much have the sands shifted that there is a solid risk the RBNZ is goaded into cutting its OCR a further 25 basis points, to 1.25%, this week".

Kiwibank chief economist Jarrod Kerr and senior economist Jeremy Couchman say they expect the RBNZ to keep the cash rate unchanged at 1.50%, preferring to wait another six weeks for the more in-depth MPS forecasting update in August.

"But we certainly wouldn't rule out a cut on Wednesday, given the race to lower rates offshore."

Kerr and Couchman say lower wholesale interest rates are doing some of the work for the RBNZ.

"But the RBNZ risks a spike higher interest rates and the currency if the one-page OCR statement is not seen as dovish (enough).

"...If the RBNZ come across as slow, or reluctant, to cut, then there could be an unhelpful pop higher."

BNZ's Ebert says says immediately after May’s Monetary Policy Statement (MPS) the BNZ highlighted that the Reserve Bank would be cutting rates again.

"At that time we noted that we were “ambivalent between August and November” with regard to timing. Given latest developments, and from our economic commentaries over recent weeks, it should be clear to all that our ambivalence has shifted in favour of August."

But, so much have things changed that there is a chance that cut will happen this week, he says.

"Sure, Q1 [March quarter] GDP proved stronger than the Reserve Bank anticipated. The Q2 CPI is shaping up to be in line with the Bank’s expectations. And it remains to be seen whether spare capacity will open up in the economy, dampening (the rise in?) core inflation pressure," he says.

However, March quarter GDP figures were not all that robust at heart, and key domestic demand components of it were lagging.

"More to the point, some key leading indicators domestically have sagged. This is further threatening our forecasts of GDP for 2019 (which are already, and still, lower than the Reserve Bank’s). And importantly, there are elements of demand in this local slowdown now, rather than just a reflection of severe supply constraints.

"The dovish pivots from the RBA, the US Federal Reserve, and the ECB also lend themselves to the RBNZ producing a statement this Wednesday that is at least as dovish as its May missive."

And Ebert says BNZ economists are conscious that, in May, the Reserve Bank intimated that it wanted to keep "in front of the curve".

"If this remains its reasoning then the door to a June ease [this week] is definitely opened."

Ebert says he thinks next week’s NZIER Quarterly Survey of Business Opinion (QSBO) is worth waiting for for the RBNZ. And "on balance of probability", expects the RBNZ to hold the OCR at 1.50% on Wednesday.

"Nonetheless, in the least, it will probably sound dovish enough, in its text, to leave the market largely pricing another 25bp cut at the August Monetary Policy Statement."

As for where "this process could end up", the BNZ economists are mindful that CPI inflation – and expectations thereof – might struggle to live up to the exact outcomes that central banks are mandated in achieving.

"While there are many reasons inflation is (globally) capped, central banks will back the remaining options they have to drive prescribed outcomes. While it might not have a material bearing on GDP and CPI trajectories, further central bank easing (in its various forms) does seem prone to excite the financial markets for a time. Hang on to your hats. It could get unconventional."

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The race to as close to zero as possible.

Long 10 year+ NZ govt bonds still looking like the trade to be in over the next 12 months+.


If businesses cant thrive in a 1.5% environment how will they fear in a 1.25% environment.

Shows that alot revolves around housing and with Auckland house prices dropping, credit growth dwindling and the wealth effect pulling back on consumption, we find ourselves heading to zero.

All we can do is import immigrants to increase GDP and consumption whilst suppressing local wage growth

In such contrast Wall street is peaking on the sentiment lower rates are on the way to save those companies that are so heavily in debt and not earning enough money.

What a pickle we have gotten ourselves into....

You expressed that well. A kind of "no bullshit" description of reality.

Life is good... and if mortgage rates hit 3.5% life will be great!

New cars, holiday homes and overseas holidays all round!


Maybe we should just print money and hand it out to all and sundry. Make everyone rich. The whole idea of money chasing a return is so old school.

Gotta keep supporting the market that can't stand up under its own steam.


Orr: Dammit NZ why won't you borrow! It's so cheap!
NZ: Well, we're saving for a deposit at the moment... you know.. LVR's...
Orr: But you were doing so well up until last year??
NZ: That wasn't us.
Orr: Well who was it?
NZ: Ask Canada, you'll figure it out.
Orr: For God's sake, I need someone to step up to borrow.
NZ: Well, we don't feel comfortable about just borrowing for consumption, I mean, it doesn't bring happiness for one thing, and the idea of going into debt for a TV is iffy. And we've borrowed ok? For housing. Big time. And that jacked up the price of housing, so that has been difficult for us to absorb, basically our kids are screwed. Now, if you were wanting us to borrow to start productive businesses, well yes, there's a case for that but at 1.5% or 1.25% what difference does it make really?
Orr: son of a .... *picks up phone* Hey Lees-Galloway you still got your job in immigration? We're gonna need another 50,000 man, these clowns are harshing my mellow man.

I just dribbled my coffee, well done Jedi.

Quality satire, nicely done.

The house of cards is starting to face a fair breeze

This article says it all

Yeah, it dawned on me this morning, even more than usual, what a big ponzi our economy is.
I do some university lecturing and was spending a bit of time marking exams in the weekend. There are people in our university system that shouldn't be at university, let alone final year students. It's just ponzi upon ponzi upon ponzi I am afraid.
Some of us are awake to this, and how fragile it all is. Most don't want to know - and that's ok I guess (provided they have contingencies)
It's like religion really - 'opiate for the people'

When you talk about opiate for the people, it could make one consider whether the worldwide push for legalisation of Canabis is actually because the pollies think it will be a good way of achieving a docile populous, with many too wrecked to revolt when the shit hits the fan.

Not, I'd argue the opposite. Legalise the lot and watch the revenues move from the criminal private sector into the tax base. Political corruption is protecting the drug trade.

to see the path in front of us, just look to Japan:

But ... Japan has had the luxury of growth external to Japan (for the past 3 decades)
we dont have that luxury

Of course the world economy is not slowing and bankers are not panicking.
Interest rate cuts, like any price cut, are due to buyers not wanting loans.
Which is a sign of weakness of an economy.
Watch out for further default activity in China and development companies going down in Auckland.
Pollyannas watch out.

'Watch out for further default activity in China and development companies going down in Auckland.'
Yep, I expect a few moderate size development companies to fall by year's end.

Absence of demand in economy: causes:

1. Too much money at top so not spending it
2. Lack of money in hands of people who will spend it (propensity to consume, Keynes sorry money men)
3. Inadequate wages so need to borrow and cannot afford any more debt
4. Ageing population
5. People to wanting to load up on debt to buy worthless wooden shacks on over-priced land in Auckland
6. Overseas rich not allowed to buy any more

NOT interest rates being too high.

By way, are we not told endlessly by our great economists that cause of house price inflation and rampant flipping is low interest rates and immigration rate being high. Er.... we have both and prices asked are falling in Auckland and sales are 33% down on 2018. Time for a re-think and a new course in economic degrees mentioning credit and Ponzi and velocity of money?

Well put. I'm not sure if our beloved bank economists talk this crap because they are dumb, or because they have an obvious vested interest. I suspect the latter, because I don't think they are that dumb....

"Too much money at top so not spending it ... Lack of money in hands of people who will spend it ..."

You're describing symptoms. The bottom line is resources per capita is in decline. You cant fix a Physics problem with fiat currency ....
what we are seeing is an inevitable result of economies to scale trying to outpace diminishing returns across resource bases.

If you spread purchasing power wider you just collapse resource bases even faster....

What does the RB know?? They seem to be in defense mode given it's currently fair weather based on gdp stats. So far a deposit guarentee scheme, pressure on banks to increase capital ratios, what appears to be unnecessary interest rate reductions. They're shuttering up the windows before the storm perhaps knowing the house will blow over anyway.

The ponzi scheme is a mountain of worthless debt created by the fiat currency system and fractional reserve banking. At some point the music stops. Just look at which countries are buying up gold.

ANZ, Kiwibank and BNZ all suggesting further cuts coming, possibly this week. Why is the Kiwi not collapsing.
It can't be just the ruminations of Interest's Kerr holding it up surely?

We're following the rest of the world down. If we were doing it on our own, then our dollar would collapse.

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Days to the General Election: 39
See Party Policies here. Party Lists here.