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A review of things you need to know before you sign off on Wednesday; OCR rises for a fourth straight time, Kiwibank reacts first, rural real estate sluggish, producer prices high, swaps firm, NZD holds, & more

Business / news
A review of things you need to know before you sign off on Wednesday; OCR rises for a fourth straight time, Kiwibank reacts first, rural real estate sluggish, producer prices high, swaps firm, NZD holds, & more

Here are the key things you need to know before you leave work today (or if you already work from home, before you shutdown your laptop).

MORTGAGE RATE CHANGES
Kiwibank was the first to pass on today's OCR increase. They have raise theirs by +50 bps to 6.50%. More here.

TERM DEPOSIT RATE CHANGES
Kiwibank raised some savings account rates, some by +40 bps (Notice Savers) and one by +50 bps (on call account).

RBNZ ON REPEATER MODE
At its meeting today, the RBNZ raised the OCR by another +50 bps to 3.0%. This is its fourth 'double' hike in a row ('normal' changes are +/- 25 bps). They are now forecasting a slightly higher peak for the Official Cash Rate of over 4% by June next year. The RBNZ is assuming inflation will decline from here. The full MPS with projections is here.

RURAL REAL ESTATE STAYS WEAK
Farm sales are down +30% from year ago levels and down -45% from pre pandemic. Winter lifestyle block sales in July were weak as well, and compared to the same period a year ago, sales volumes are down -30%.

PRODUCER PRICES RISING FASTER
Producer input costs rose +9.7% in the June quarter compared to the same period a year ago, but are rising faster recently with the March-to-June increase up at an annualised +12.4% pace. Producers are not managing to pass on all these increases. Their output prices rose 'only' +8.5% in the June quarter although they have picked up the pace somewhat recently.

FARM EXPENSES RISE FASTER THAN THE PPI
Farm expenses have been rising much faster than overall producer costs. They were up +13.7% excluding livestock in the year to June. That compares with overall producer costs (inputs) going up +9.7% over the same time. The annualised June quarter farm expense increase from the March quarter was up +19.6%, so recent increases are rising faster.

CAPITAL GOODS PRICE RISES TOP THE LOT
The cost of investing in capital goods is also rising fast, up +12.5% in a year with the pace up to +14.8% in the March-to-June period. A weak NZD doesn't help. The NZD depreciated -10% in June 2022 compared to June 2021, so that accounts for the imported portion. But buildings and construction make up a big part of the capital goods index and much of those costs don't have direct imported components.

BORDERS ACTIVE AGAIN
The flow inwards of foreign migrants turned positive in the June quarter for first time since start of the Covid-19 pandemic. This big jump in foreign migrants was mirrored by more New Zealanders leaving as well.

A PROFITABLE POSITION
Fletcher Building (FBU, #9) has acknowledged this has 'been a difficult time' for many customers as it reports a +42% lift in annual profits. It also says it still sees the plasterboard market returning to 'equilibrium' by October, an unchanged estimate.

NEW POLL, OUTDATED ALREADY
The latest TU/Curia political poll taken in the August 3-11 period where National was under pressure from its new wayward Tauranga MP, has Labour back ahead with National dropping sharply. Act and the Greens inched up. On this poll, National+Act could not form a government. Events have somewhat overshadowed the issues that were front & center in this poll however.

SWAP RATES FIRM
Wholesale swap rates are probably higher today after the RBNZ decisions. The 90 day bank bill rate was up +1 bp to 3.31% ahead of today's OCR review. The Australian 10 year bond yield is now at 3.29% and up +3 bps since this time yesterday. China isn't helping. The China 10 year bond rate is at 2.66% and another -1 bp slip and a two year low. The NZ Government 10 year bond rate is now at 3.44%, up +5 bps from this morning, and now just above the earlier RBNZ fix for this bond which was unchanged at 3.40%. The UST 10 year is now at 2.78% and down -6 bps from this time yesterday.

EQUITIES MIXED
The S&P500 ended its Tuesday Wall Street session up +0.2%. Tokyo has opened its Wednesday session up +0.8%. Hong Kong has recovered +0.6% and Shanghai is up +0.1% in early trade. The ASX200 is flat in early afternoon trade. But the NZX50 has gone lower, down -0.2%.

GOLD SLIPS SLIGHTLY
In early Asian trade, gold fallen -US$2 to US$1,777/oz.

NZD HOLDS
The Kiwi dollar is little-changed at 63.5 USc with no impact from the OCR. Against the AUD we are firmish at 90.8 AUc. Against the euro we are marginally softer at 62.5 euro cents. That means our TWI-5 is now at 72.1.

BITCOIN HOLDS
Bitcoin is up +0.8% from this time yesterday to US$24,003. Volatility over the past 24 hours has been modest at just on +/- 1.0%.

Daily exchange rates

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End of day UTC
Source: CoinDesk

Daily swap rates

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This soil moisture chart is animated here.

Keep abreast of upcoming events by following our Economic Calendar here ».

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49 Comments

2023 will be bleak!  You cannot increase interest rates by over 3% in a high debt environment, without having a major effect on spending.  I predict at best a recession in 2023, or worse

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At the time of covid the economy was hardly buoyant was it. The OCR had been consistently lowered and it should have been quite obvious that any stimulus provided by that was already spent. Yet on covid they crashed it down which was little more than flogging a dead horse. So as it was played out by the RBNZ they brought it down far too fast and low and then raised it far too late and slow. And here we all are now, inflation & other pressures have come over the horizon and are now laying on the black clouds & bad weather with quite some energy.

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4

If they could've timed the market well enough then they'd outperform the best fund managers on earth.

Fast slow, too much too little, history will likely show that to be trivia in the scheme of things. 

At least in the medium term, we're riding a much larger bus than any NZ entity has the ability to control.

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Another consideration will have been the next election timing. They know that if things go really badly for the housing market and economy their jobs are on the line with the change in govt. Hence the over stimulation and the delay in getting inflation back to their mandated level.

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Does the elected government control the hiring and firing within the RBNZ?

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 Members of our Board are appointed by the Governor-General on the recommendation of the Minister of Finance. 

https://www.rbnz.govt.nz/about-us/our-people/our-board-members

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On the basis of that, suggest that he or her didn’t really want to get an answer to his or her question.

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The RBNZ are independent. 
 

yeah right.

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Sounds like the talk of a Doom and Gloom Merchant there Yvil.

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5

Agree with you Yvil. While demand falls off a cliff globally, NZ prices will remain high IMO. This is for a number of reasons:

1. Tyranny of distance and low economies of scale

2. Addiction to bubble economics. Prices ramp up in countries like NZ and Aussie because you need to generate high rev / income to pay for the dumb housing bubble. Prices have fallen in deflationary economies like Japan. Because they have greater mkt scale, businesses can survive longer - - lower margin to maintain vol. NZ does not have that luxury. 

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Come on Yvil you're being such a doom goblin these days. Everything will be fine. TTP said so. It will be a soft landing for the housing market, even if the rest of the economy is on its knees. And who really cares about the rest of the economy when everything that is important in this world is the housing market, so in reality what you are saying doesn't matter at all!

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6

Where in my comment, did I speak about the housing market?

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All roads lead back to the housing market.

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You talked about a high debt environment, and given that our government debt is relatively low compared to most countries, one must assume you are talking about housing debt...

If you aren't talking about housing debt - what debt are you referring to?

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Presumably non housing private debt. Commercial and consumer.

I know everyone seems to have a big boner for housing, but rates have been trending down for decades now in order to try and spur growth across every sector. Margins are now wafer thin, and consumers relatively cash poor, so it'll be fun times in a rising interest environment.

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What I'm "referring to" is simply what I'm saying:

by Yvil | 17th Aug 22, 4:11pm

2023 will be bleak!  You cannot increase interest rates by over 3% in a high debt environment, without having a major effect on spending.  I predict at best a recession in 2023, or worse.

(bold words to help you out)

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What about the high debt environemnt - is that the housing market? Or something else?

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IO, I assume you understand that a recession doesn't just affect the housing market?  It makes businesses fall over, then many people lose their jobs hence their income drops sharply.

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Yes but raising rates in a high debt environment - this is what you said.

So where is the high debt?

(its not the government)

I'm attempting to lead the horse to water, but while dying of dehydration, fails to be aware that it is even thirsty. 

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Have a nice evening

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I agree Yvil. Incredible to think where we are now and the Least Regrets decisions of only 2 years ago. Sitting on hands until late 2021 when inflation was raging.

What sort of a press do we have here? It really is only Michael Reddell who challenges ORR and the RBNZ. He is totally ostracised because of it.

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And HE'S not anywhere near the truth.

There's a difference between stocks and flows.... just as there's a difference between energy and technology.

So many folk work on prior assumptions.....

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I am glad you have come around to so many of my points of view Yvil.

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Except that last week you posted "Yvil has gone extreme DGM since the end of last year"

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Classy

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You take yourself far too seriously.

At least TTP provides some laughs, even if many of them are unintended. 

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No mention of the impressive wage increases recently released?

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Really? Aussie wage growth is dismal. Missed forecasts and massively lagging inflation.

https://www.reuters.com/world/asia-pacific/australia-wage-growth-picks-…

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Catch 22.

Any substantial wage rises that do eventuate will be akin to throwing petrol on the bonfire of inflation.

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Have to admit my favourite all time book. Revisited it countless times, but very much doubt that the author himself would ever  have envisaged the farcical lot we have here in government, with much of the rest of parliament not all that far behind, sad to say. Chlochmerle, déjà vu, all over again.

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Where can I find the info on the Kiwibank interest rate increase for their on-call and savings accounts? Can't seem to find the info

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Greetings fellow saver! I thought I was one of the last ;-) I can see the updated rates for notice 30/90 and on call here: https://www.interest.co.nz/saving/call-account

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Thanks!

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 Winter lifestyle block sales in July were weak as well

Wonder what the correlation between petrol prices and lifesyle block sales is?  A high carbon lifestyle probably gets less popular when carbon prices are high.

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I noticed the same thing when we had the crazy high fuel price spike a few years back. 

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So could be a bounce back in 'lifestyle' block sales with the rate oil prices are dropping.

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Having recently moved you notice it on school runs... but i WFH 4 days a week now....   I am still 10km from bunnings and the other necessities.   On the up side I have 440kg of beef wanting to go flatting in the freezor and 19 lambs that will grow into roasts.....     rates are less the Glendowie, vege garden and orchard much bigger....         never go back to the city, its full of intense developement and homeless people wanting to be rehomed next to u, not happening out here in the bonnies

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The UK this evening:

The consumer price index rose by more than expected to hit 10.1pc last month, according to figures from the Office for National Statistics. That’s up from 9.4pc in June and marks the highest level of inflation for more than four decades.

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Anyone else think its possible that by raising interest rates, central banks are going to create more inflation?

Logic being many businesses have been loading up with cheap credit over the past 10 years, and now that servicing costs are increasing, they will attempt to pass these through to consumers.

If they don't pass them through to consumers they default.

But if they do pass them through to consumers, the it gets picked up in high prices for goods and services = high inflation = central banks raising rates even higher!

Unless we have a hard recession and a quite a few debt defaults, the central banks appear to be in a corner they can't remove themselves from.

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Yes, to answer your first question. 
Raising interest rates have both inflationary and deflationary impacts, but the general view is that they are more deflationary than inflationary, on a net basis across the economy. 

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Yes agree - I'm just wondering how many businesses will need to fail and how much debt will need to be defaulted against before this becomes deflationary and central banks stop raising rates. 

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i think the modern feedback loops are poorly understood, as the last time this was tried we where not closely tide to the global diary trade auction, china etc etc....   ie What could possibly go wrong....

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As I've said many times before, I think we'll start seeing a lot of strife in residential construction by early next year, and that will have large spin offs throughout the rest of the economy.

So lots of businesses failures in the first half of 2023, defaults, and unemployment up to 5-6% by mid 2023. 

Rate rises will stop by early 2023, and we'll see rate cuts by mid 2023.  

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Wakey wakey IO, I've been saying this for a month. This is an energy and supply side shock, the average person needs a pay rise to deal with rising interest rates. It's a negative feedback loop.

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Wait till they go into winter, their energy prices are through the roof, honestly its eye watering.

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whats wrong with two months annual salary to pay power bills per year?

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Massive volumes of Oil and Gas are certainly consumed in the Northern Hemisphere lands for heating - with Russian supply off the table (excepting China/India who want cheep cheep Rusky oil)   oil will have a big rebound upwards in 2 to 3 months.  Inflation will be back!

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On the news today, the UK just hit double digit inflation.

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RBNZ is assuming inflation will decline from here.

I'll believe RBNZ have tamed inflation when I see back-to-back quarters of declines.

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