There's "next to no chance" of another Official Cash Rate (OCR) hike in the foreseeable future barring any shocks to the economy, BNZ's head of research Stephen Toplis says.
His comments follow release of NZIER's latest Quarterly Survey of Business Opinion (QSBO), which showed some marked declines in labour market and capacity pressures, albeit that cost pressures remained high.
The Reserve Bank (RBNZ) has been ramping up the OCR, from just 0.25% as of October 2021 to 5.5% as it battles to get inflation back into its targeted 1%-3% range. As of the March quarter the country had an annual rate of inflation of 6.7%. The RBNZ hopes to tackle inflation by taking heat out of the economy and an incredibly overheated labour market, which has seen unemployment settle at just 3.4%.
Unexpectedly, after raising the OCR by another 25 points (to 5.5%) at its last review in May, the RBNZ indicated it saw no further rises - at least for now. The next review is on July 12. Some economists are still forecasting that the RBNZ will need to be back later in the year with another hike.
In an Economy Watch research note, Toplis said the RBNZ will be satisfied with the results of the June NZIER QSBO.
"In short it provides very strong evidence that inflationary pressures are abating and that we are heading towards maximum sustainable employment at an accelerating rate. All of this means talk of raising interest rates again should be extinguished (for now at least)," Toplis said.
He said for BNZ's economists the NZIER survey "was all about the labour market".
"And, boy, was it enlightening. Anecdotal evidence continues to mount that surging net immigration and falling domestic demand are conspiring to dramatically lower staffing pressure. Today’s report provides strong confirming evidence of this."
Toplis noted that a net 38% of survey respondees still report that skilled labour is getting harder to find but this was down on the 44% who thought likewise a quarter ago and the peak of 73% back in December 2021. "If you exclude post Covid noise, you have to go back to March 2016 to find an easier reading."
The change in difficulty finding unskilled labour was even more stark, Toplis said. This went from a net 37% finding it more difficult in the March survey to just 10% now. "Again, ex-Covid noise you have to go back to December 15 to find softer conditions.
"When the difficulty readings were last at these levels the New Zealand unemployment rate was sitting at around 5.0%," he said.
Labour as a major factor constraint also eased to 25% of businesses from 29% and a peak of 43%, he noted.
"All of the above is not to say the labour market is anywhere near weak yet. After all, a net 4% of businesses still intend to take on more staff. But what it does show is that the balance between supply and demand is returning at pace."
Toplis said as labour is a critical factor in business costs, and the effective cost inflation associated with hiring appears to be diminishing, it should therefore come as no surprise to learn that business intention to raise prices is falling. A net 48% still expect to raise prices but this is well down from the peak of 77% and last quarter’s 61%.
"This fits perfectly with our expectation that annual CPI inflation will fall to 4.5% by the end of this year. The RBNZ is picking 4.9% and will find nothing to dissuade it from its view in these data."
Another disinflationary point of note, Toplis said was NZIER’s "capacity utilisation variable".
"This collapsed to 87.1% from 94.0%. It can be a difficult variable to interpret but its fall to a level last seen in mid-1998 must surely mean something about rising spare capacity and weakening inflationary pressures."
Toplis said the latest NZIER survey "confirms our view that the economy will be going nowhere fast for some time yet".
He said the survey's indicator of domestic trading activity surprisingly fell to -17 from -8 last quarter. By itself this would tend to suggest a negative GDP reading for both the June and September quarters.
"Was this to come true it would be a more miserable outcome than we are forecasting. It is, nonetheless, consistent with our view that annual GDP growth turns negative in the September quarter. We are only just starting to see the impact of the current slowdown on the labour market. It is largely being disguised by the excess demand starting point. But we do believe the slowdown’s effects will soon become more apparent."
Toplis said this was already apparent in profitability where expectations in the survey for future profitability remain "moribund".
"Not only is this bad news for business, future employment and investment but also for the government whose finances are already under pressure from a slumping corporate tax take.
"In terms of monetary policy settings, today’s data fit very well with our view that there is next to no chance of a rate hike in the foreseeable future barring any shocks. We continue to believe the next move in interest rates will be down and that this will possibly occur sooner than the RBNZ expects."
The RBNZ is at this stage not forecasting any falls in the OCR till the second half of 2024.
NZIER principal economist Christina Leung, said the survey results suggested that "things are moving in the right direction for the Reserve Bank".
"Certainly, while inflation pressures still look to be quite elevated for now, looking ahead, firms are expecting an easing of both cost and price pressures, so that should give the Reserve Bank enough comfort that they have done enough for annual CPI inflation to move back towards its 1-3% target over the coming years.
"The Reserve Bank has indicated that it does not expect to have to increase the OCR any further and we think these results [QSBO] should provide enough comfort that things are moving in the right direction."
Additional reporting by Eric Frykberg
77 Comments
We're all commenting on the OCR, some with a lot of conviction, despite having a lot less data available to us than economists do. Have you ever considered that these much hated economists predict that it's the end of the OCR rises because 1) they believe so 2) Orr said so, or do you think that what you would like to happen is more important?
Data like this for example:
https://d321bl9io865gk.cloudfront.net/view?src=https%3A%2F%2Fanz-single…{%22ratingValue%22:%220%22,%22ratingType%22:%22star%22}
It doesnt pay to spend much time listening to liars
Like the ones who said this could sell for 450k https://www.oneroof.co.nz/news/43875 sold for 620k, 40% more
The RE boss will tell the agent they did good pulling in suckers.
Sorry guys but I completely agree with Yvil.
there is so much, Shoot from the hip, emotionally charged rubbish commented here. Usually about how actual real economists are simply bias if they say something against the theme of house prices are crashing to oblivion and we are all doomed.
Can we start to call the elephant in the room and say who is actually biased?
Jamin
I agree with you.
There is no certainty in the the movement of the OCR - unknown external events (such as oil prices or an escalation of Ukraine) could well be one factor that could readily effect the CPI, or the current OCR level may prove not to be sufficient to tame inflation.
However I agree with your sentiment that there are some anonymous keyboard warriors who think that they know better and are ready to ridicule the likes of both the RBNZ who have signaled that the current OCR rate is likely to remain for the seeable future (see my post below) and Toplis as head of research BNZ.
If I had a mortgage and was looking to refix my term, I would be very carefully listening to and noting what the RBNZ are saying (after all they set the OCR which greatly affects mortgage rates) and the head of research at BNZ (who actually set mortgage rates).
As said, there is no certainty, but I would be carefully considering what they have to say, rather those know-all less qualified anonymous keyboard warriors spouting on posting outlandish predictions simply for up-ticks to appease their egos. :)
Let's consider that the BNZ bloke has vested interest as well. Just like all banks, and just like their global owners.
Vested interests also said Brexit wouldn't happen, Trump wouldn't happen, Bitcoin wouldn't be much, the Peyro Huan wouldn't be much, Venezuela wouldnt nationalise its oil, that Russa wouldn't invade Ukraine, and that mainstream media was independent and impartial. All wrong and now throwing the global financial domination of everything and media smokescreen out of balance.
Let's just accept that betting on endless debt and leverage is no longer as one sided as it was. And is so, for the first time in quite a while.
But you are right. Make up your own mind and make your play...
Usually about how actual real economists are simply bias if they say something against the theme of house prices are crashing to oblivion and we are all doomed.
So what defines a 'real economist'? A job title at a bank or central bank? Can an academic with a PhD in economics call themselves an economist? What about a PhD in economics but not working in the field? Does Masters level education in economics qualify one?
Like this one
To which you commented:
I can't see anything in Orr's speech or statement which says that this was the last rise for the foreseeable future. Can you please point out what the RBNZ stated which made you believe that this was be the last OCR rise ? Thank you.
It could be the top, but there is zero guarantee.
Edit: Actually the thread that this comment kicked off is worth the read for a bit of a refresher. Some direct quotes.
I’d side with Orr and the chance of a change in circumstances leading to earlier hikes/cuts. But I wouldn’t make a definitive call on it right this minute with anything but money I was prepared to lose.
Id suggest a further increase in light of transport cost increases flowing through everything, but that may be cancelled out by the effect of previous increases rolling through the economy.
Is it enough? A collective unknown
Yvil
The last paragraph of the 23 May MPS states:
The Monetary Policy Committee reached a consensus that interest rates will need to remain at a restrictive level for the foreseeable future, to ensure consumer price inflation returns to the 1 to 3% target range while supporting maximum sustainable employment.
This is "RBNZ speak".
My understanding - and that of many recognised commentators such as interest.co - is that translated it means that they think it is at the right level and that they are not signally the likelihood of either future rise or fall (as they often explicitly signaled in the past), rather that the rate is likely to remain at what is a restrictive level for the foreseeable future.
However, such a vague statement means they are not promising that there won't be either a cut or rise; to indicate that could unfavourably influences the market in terms of their goal of reducing inflation.
In Sept 2020 he also said "banks must lend courageously and the least regrets policy response was to ease monetary conditions significantly"
https://www.stuff.co.nz/business/opinion-analysis/300098412/adrian-orr-…
What do you think will happen to the NZD if the FED opts for at least two more hikes and we don't? With the likely backdrop of a plummeting currency and significant imported inflation, will Orr be forced into a back track situation then?
Orr never minds to backtrack - remember 'transitory inflation' .
Important to note that the RBNZ are 90% reactive 10% proactive. If the Fed raises then we will have to raise too and Orr, the Banks and Policitians will claim its down to external factors.
Hopefully everyone has learned that the No 1 rule is to do your own homework, assess how much risk you want to take and then track external developments and their impact on your situation yourself.
Plenty of people got smashed by this - some feel they are victims (and will repeat) others look at where they went wrong and are unlikely to make the same mistake.
If you learned anything from Orr is that he is pig headed and does what he says he is going to do regardless. There will be no more rates rises unless "Pigs Fly". The Australians not moving is already an out for him not shifting rates. July 12th with be no rise and I will be shocked if its even 25bps. The effects of existing rises are now cutting in dramatically over the next 6 months. People were warned by Orr for a whole year that rates were rising but they didn't listen and fix long.
Didn't he say that their forecast suggested no more hikes? Things change, and they can't accurately forecast on uncertainties, only what they know. Or rather, they possibly make a number of forecasts based on several scenarios and pick a more likely outcome. I wouldn't count for or against it right now. Anybody willing to bet a cool $1m on it and willing to take the risk will either reap the rewards or get burnt. Such is the state of the economy.
No, it's because people cheering on for interest rate hikes do so, because they have missed out making money on real estate and, being very bitter about it, they cheer on higher interest rates in the hope that people who did make money from RE will suffer.
You see, they accuse bank economists to make claims for their own benefits, but these cheer leaders do exactly the same !
Sounds like someone was a bit late to sell. NO GAINS !
I don't think Yvile you should be talking about claims for own benefits . You can not be trusted.
by Yvil | 3rd Jul 23, 1:39pm
Finally a rate over 7%, although anyone can get a rates starting with a 6 with a bit of negotiation. Who remembers the clown who "guaranteed" 7% by the end of last year. I think he used to say 10% guaranteed in 2023 . It just goes to show how some people have no clue!
3
by Hawkes Bay | 3rd Jul 23, 4:29pm
So Yvil how does this comment of yours from last year fit into your comment today ??????????????????????????
by Yvil | 15th Nov 22, 4:43pm
Well you did very well predicting 7% interest rates by December 2022, when most of us, me included, didn't believe it, so well done on this prediction!
I have noticed how unstable and rattled you have become. But this continual manipulation to control the narrative is unacceptable .
The Prophet said 7% Interest Rates This Year, Guaranteed ! (2022) - Prophecy Confirmed.
10% Interest Rates This Year, Guaranteed ! (2023) To Be Confirmed.
It is important for us to watch the Vile meter. Or should I say the Yvil meter ?
Read less
If housing was liquid, and every investor cashed out over the last few years, the inflationary impact would send our country into oblivion.
I see current higher interest rates as an opportunity to stabilize our economy and readjust our spending towards productive measures instead of the same old house again and again and again.
Some people are suffering, some people will suffer. But is that suffering a cause of the higher interest rates now or the lower interest rates for the last decade?
We've sent a propeller plane straight up without parachutes, now the engine has cut out there are a fair few people watching it in freefall, "well that was a dumb idea."
The only way out is to spend. Do you want some productivity or the same house again?
That's quite a spiteful comment Yves and comes across pretty hypocritical considering you're trying to take the side of righteousness there. A lot of us (not just commenters on this site) are glad that interest rates have been normalising as it's bringing housing values back down to more realistic levels. Believe it or not some of us care about future owners that aren't yet in a position to enter the housing market, rather than people that have lost out on possible tax free capital gains (your baseless assumption). A stable housing market is healthier for society so, funnily enough, commenters like yourself come across as the ones hoping for people to suffer. Your lack of self-awareness at times while trying to act holier than thou is quite comical.
The more Vile Yvil becomes the more clear it is how fast the market is CRASHING !
Has anyone else here noticed how desperate Yvile is these days ?
His property gains are Vaporizing like spilt petrol on Hot Concrete. His big man identity is shattered . Hero ( in his own mind ) to Zero.
I am getting very worried my Popcorn ( extra butter ) supplies will not keep up with all this action.
I just can't believe Yvile did not learn from his mistakes the first time. Oh Well, more popcorn for me !
Ease up HB, most of his comments are fairly balanced when you read them over time. I wouldn’t portray him as a spruiker…rather someone who positions themselves strategically according to their understanding of financial conditions. They’re pretty volatile right now and everyone’s trying to make the best decisions going forward.
Hi Snow, I agree, my comment is not very nice but can you see how it replies to equally spiteful comments at the other end of the spectrum? I did not start agressive, but yes I replied in an equally robust way to the very critical and agressive comments.
I have no problem with interest rates rising, or with house prices coming down to more affordable levels, it needs to happen in NZ.
So do you consider these comments neutral and well balanced?
by nguturoa | 4th Jul 23, 2:26pm
Why have all the bank managers become the OCR astrologers recently?
Ohh because it's in their best interest?
Why are they allowed to comment on OCR.. Is it not like insider trading?
by tomjones_04 | 4th Jul 23, 2:50pm
What data?? The economists data I read is hair brained surveys about FOOP and FOMO!! I'd say any 10 year old will be able to predict the future as accurately as these economists... it's so uncertain.
by Flying high | 4th Jul 23, 6:18pm
It doesnt pay to spend much time listening to liars
Like the ones who said this could sell for 450k https://www.oneroof.co.nz/news/43875 sold for 620k, 40% more
The RE boss will tell the agent they did good pulling in suckers.
With the large pay rises about to flow through to 120,000 nurses and teachers including large cash amounts, together with strong wage growth in the private sector, fuel inflation of 10% about to flow thru the economy, the falling Kiwi$ as the US continues to raise rates, Council rates increases of 6 to 20% next month, dont hold your breath BNZ. I am most interested to see the rate of inflation in the Oct - Dec quarter later this year. Until then its a 'hold' for RBNZ as they have said.
I am most interested to see the rate of inflation in the Oct - Dec quarter later this year
The Sep quarter print will also be one to watch. Big increases in petrol excise, RUC (up 56%), transport fares (up 100%), council rates, alcohol excise and insurance premiums.
To make things more interesting, part of the Health NZ nurse pay settlement is a $15k lumpsum in backpay this year.
If you look at the average price for 91 in July 2022 it was over $3/L. Even with the tax returning it is still well below that now
https://www.interest.co.nz/charts/commodities/oil-and-petrol
What a crock of cack statement that is
"There's "next to no chance" of another Official Cash Rate (OCR) hike in the foreseeable future barring any shocks to the economy, BNZ's head of research Stephen Toplis says"
If he's going to say that he also needs to give an indication on what he thinks the odds are of a shock to the economy.
As a counter opinion, I could see the OCR rising if a National/ACT coalition is elected. Their policies of inflationary tax cuts for the well off and property investors could well get the property market going again which will add further pressure on inflation. Add in the fact the return of the 25c fuel tax will show up in the CPI release just after the election. Any public service cuts would take longer to make and thus have an effect. This is not guaranteed, but a possible scenario.
National also has a policy to take the employment mandate away from the RBNZ so they just focus on inflation. This is likely to increase rates.
a tax cut means the government let go the control some economic resources back to the economy. It'll be inflationary if those released resources generates less output than if controlled by government, and deflationary if the opposite.
Judging by the huge waste of tax $$ the current government has done, I'm pretty sure it'll be better leave those $$ to average joes, and deliver more output than governments.
in short, the tax cut might be deflationary than inflationary.
It's not really that clear cut. A health worker will cost more than that as there are costs outside of salary such as benefits, Kiwisaver, etc. However to fill the gaps they will be getting existing employees to work overtime which costs extra, or be using private health services which are also more expensive.
LOL, it looks like somebody with vested interests is trying (unsuccessfully) to influence current local swap rates. While it might well be that we are very close to the peak, current swaps very clearly indicate that any future interest rates decrease is going to be LATER, not earlier than the current forecast by the RBNZ, and smaller in extent too.
The swap markets are not easily swayed by such self-interested BS. And by the way, when it comes to medium term swaps, the main influence is international rates, not the forecast by the RBNZ, and definitely not the wishful thinking by self-serving parties.
Let's keep in mind that neither Stephen Toplis nor any of the other bank economists saw the OCR anywhere near 5.5% 18 months ago, and by and large, have spent the time between then and now looking for The Top in interest rates.
One day they will be right, but given all the uncertainty about; or to use Toplis' words "barring any shocks" ( as good a set of 'get out of jail free' words as any of us could pen!) the probability must be on the side of more OCR rises coming up. The impending Election could very well limit that possibility in the near term, but after than (no matter who wins), it could be open season on the NZ economy.
S&P Global's manufacturing PMI was just as bad as ISM's, just 46.3. Orders just bad. Export orders worse. Backlogs disappearing. Soon enough, sadly lots of jobs, too. https://buff.ly/3rf9spL Link
To be fair, Topliss and Jarod Kerr have been more on the sensible side of commentary on the OCR hikes. Unlike the ridiculously hawkish ANZ crew.
Obviously I am a broken record on this, but, I still think they're underplaying it. The economy is going down the toilet - choked off masterfully by RBNZ who mistakenly believe that they are doing the right thing.
I am borderline ashamed of collecting healthy winnings for a bet on the technical recession (two consecutive quarters of negative GDP) that I made back in April 2022 and I have never been more confident that we will slip deeper into recession over the rest of the year. Govt is not spending, banks are not lending (well customers are not borrowing), and we have an unavoidable current account deficit because we are importing oil and Teslas like they're going out of fashion, and our low value ecosystem destroying exports are increasingly worthless in comparison.
This is obviously the very worse time to have a new Govt (of whatever colour). They are going to have to come in and try and solve a tricky economic puzzle and make good, strategic decisions about stimulatory investments. Sadly they will be advised by the same clueless fools that have got us into this mess.
Unfortunately people are too invested in which side of the woke coin suits their normal to see it coming. Whether we get flavours of red or blue, will make minimal difference. The main policy decisions of influence are whether we choose a government willing to spend our way out and attempt to draw out a longer shallower recession, or a cut spending band-aid ripper of a year in 2024. Mostly anything else is inconsequential and won't matter on the day of reckoning.
Interest rates won’t go down, they will remain elevated. Will likely follow USA.
Global macro trends such as ESG, climate change disasters and Deglobalization/geopolitics increase costs of products and services. Governments will continue deficit spending social programmes through debt which dilutes currencies eg inflationary. NZ can’t be far from a downgrade.
Assets are undergoing a repricing process over the next 5 years. DYOR.
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