Reserve Bank (RBNZ) Governor Anna Breman says the current tightening in financial market conditions has gone "beyond" the RBNZ's projection for interest rates.
In what is clearly a response to an increasing clamour for the RBNZ to clarify its position, Breman, in her first major monetary policy message since starting in the job on December 1, reiterated that the forward path for the Official Cash Rate (OCR) published in the November Monetary Policy Statement (MPS) indicates a slight probability of another rate cut in the near term.
"However, if economic conditions evolve as expected the OCR is likely to remain at its current level of 2.25% for some time," she said.
"Financial market conditions have tightened since the November [26] decision, beyond what is implied by our central projection for the OCR," Breman said.
"As always, we are closely monitoring wholesale market interest rates and their effect on households and businesses.
"Ahead of our next OCR decision in February, we will continue to assess incoming data, financial conditions, and global developments, and implications for New Zealand’s economic outlook and our medium-term inflation objective."
The comments issued proactively by the RBNZ are most unusual. Generally if the RBNZ wants to say something about monetary policy it will do so either at a scheduled event, such as an OCR review, or in a scheduled speech. These comments were issued by the RBNZ media team. And the statement also indicated that Breman is giving radio, TV and newspaper interviews this week "speaking about New Zealand’s economic outlook and monetary policy settings, as outlined in the November Monetary Policy Statement (MPS)".
The Governor's remarks come as there has again been discussion of the long gap between the last OCR review of one year and the first review of the next year.
This has been the case following the sharp rise in wholesale interest rates and some rises in mortgage and deposit rates after the last OCR review on November 26. Breman did not take part in that review.
And the rises have come even though the RBNZ cut the OCR again in that review by 25 basis points, following on from a cut of 50 bps in the October review. However, the comments from the RBNZ accompanying the November decision suggested it saw itself as done with rate cuts, while the markets had expected it would at least leave the door open to more cuts.
Breman said although she was not involved in the preparation of the November MPS, or its post-release communications, "this statement is being released to enable equitable access to information".
She said the November Monetary Policy Statement contains a thorough and clearly presented discussion of the Monetary Policy Committee’s (MPC) assessment of economic conditions and the inflation outlook. She also noted that the policy decision and the balance of risks to the outlook are well articulated in the MPC’s summary record of meeting.
"One of my priorities as Governor is to promote understanding of our role and decisions. This is especially important at this time given that I have only recently joined the MPC and assessed recent data."
Since the November MPS, the economic outlook has evolved broadly in line with the MPC’s expectations, Breman said.
"We continue to see signs that growth is recovering after having stalled in the middle of this year. The labour market is still weak but is expected to recover as demand in the economy strengthens. We remain confident that annual headline consumers price index inflation will decline towards the 2% target mid-point by the middle of next year."
Breman reiterated that monetary policy is not on a preset course. "This is why the MPC meets seven times a year to assess the latest economic conditions and forecasts."
15 Comments
Who's in the control, the RBNZ or the markets. I think we've now seen who is...
RBNZ create the illusion of control and sometimes that illusion gets exposed and people start getting a bit panicky (like bank economists right now) when the OCR and wholesale rates move in opposite directions. Eg the narrative they’re telling doesn’t match reality.
Hence why I’ve been saying I think the last cut was a mistake - the market wasn’t demanding a cut - it was demanding no change (or possibly even a 25bps rise).
Alright I'm taking the bait...how was the market demanding no change, or a rise?
From what I understand the market simply reacted to a more hawkish November MPS, two cuts had been priced in, RBNZ indicated they were at the bottom of the cutting cycle, markets adjusted accordingly? If anything the market was "demanding" a second cut hence the reaction.
And from her comments above...the cut they want might be on the cards.
Those not exposed in a big way to the asset bubble (the majority of home owners) dont want to see another surge in debt cheap debt fueled stupidity and inflation.
Personally picking another surge in inflation in the first 6 months of next year, putttting OCR up again and a big drop in tax from companies as they make less, or a loss. IRD will have to step up debt recovery leading to more liquidation activity.
Yeah I think swaps at the moment are at a key cross road - if they surge again over the coming weeks then it would appear to me that the market thinks future inflation is back as monetary policy is too lose again (as it was in 2021). ie the RBNZ have gone too far on the downside.
Time will tell of course and I could be completely wrong but it is a definite risk, which given the RBNZs recent track record, are at good odds of completely ^^@#%% up.
Without writing a thesis - both swaps and CPI rising, not falling leading into the OCR announcement.
The cut 'they want' or the cut 'you want'? (from the tone of your comments - I get the feeling you might have a lot of debt and/or interest in house prices going up not flat/down (same as Nifty), and if true, then it is impossible to see these things impartially and without emotion - please correct me if I'm wrong).
If the market was demanding a cut (as you suggest) - it would be showing us a trend towards disinflation - and that would be visible in both the CPI and swaps data before the OCR announcement (swaps and CPI going up - CPI in a year long trend and swaps in the weeks/months saying future inflation years ahead is rising, not falling). But we had exactly the opposite of that and they cut anyway. So (in my opinion and everyone has one...) the market was already disagreeing with the RBNZ forecast regardless of what you say was 'priced in'.
I don't understand how you can conclude the market was demanding another cut? If swaps (indicative of future inflation) are going up because of current monetary policy settings, then who the hell would be dumb enough to cut under those conditions and risk creating even more future inflation (due to too easy/loose monetary conditions) and the potential need to raise rates even more aggresively in the future to stop swaps (indicative of future inflation) and potentially real/experience/actually inflation from getting even more out of control months down track? That to me would be insanity (ie a repeat of 2021)
I really enjoy reading your posts, you often make valid points and while I don't always agree with your views I respect your opinion.
I am however getting really sick of the "from the tone of your comments - I get the feeling you might have a lot of debt" every time someone offers a viewpoint that differs to yours. It's a shame we can't just offer our opinions eh.
Well I get sick of people refusing to see a perspective because their own net worth is reliant upon it not being true. That is also an awful shame and that is why I ask people if they have a lot of debt on this forum. Because if they do it almost immediately clarifies all of their biases and their views then make complete sense. They aren't looking for the truth, they are looking for confirmation that their past financial decisions are going to be good and don't want to hear any views that might be bad for their own net worth/financial position.
eg 2021 those with lots of debt saying 'its impossible for the OCR to ever go above 3% when i was saying it could go above 5%...' (then it did - the impossible happened!)
So they were saying what they wanted to be true for themselves (low interest rates for as long as possible), instead of being open minded and searching for the truth and what could really happen and what was really possible. It is why I ask you the debt question as I'm testing you to see if you are open minded or not - or whether you views are good or really just your own self serving biases talking.
e.g if you now say 'hey look I've for $1,000,000 debt and two rentals' (or my kids just purchased their first home and I don't want them to go into negative equity) then to me it becomes easy as I know you aren't searching for what might happen - instead you're searching for what outcome is best for you or your families financial position. e.g. you bias is towards more rate cuts which makes any rate rises painful and something you wish to not think about (hence why my post triggered you above and Nifty below - and I know he's in the debt boat only wanting good news for the property market - ie not searching for truth - but searching for good news for property only).
Are we searching for the truth on here or are we trying to make ourselves feel better about our past financial decisions?
To put more concisely - the swaps are a reflection of whether the market thinks the current monetary settings are too tight or too lose (and if too loose = greater future inflation - too much easy money chasing goods/services = rising prices). If you cut while longer term swaps are rising as they were (saying that monetary policy is already too loose), you are, in my opinion, playing with fire. And I think at the last cut, the RBNZ are playing with fire. They risked a lot (problematic future inflation), but with very little to gain (more immediate market stimulus).
In this instance the market had got ahead of themselves and priced in two cuts, the November MPS then indicated otherwise and they adjusted accordingly.
No no it's what the 'markets demanded'...😆
Any economic growth that was gaining momentum is now in danger of stalling.
The growth is here now... or so they try and tell us...
Last years green shoots, dried and bag, get em now....... be quick
legal courier deliveries close off this friday!!!!
Well they did signal that the only way is up. Interestingly they might need to cut again sooner if the markets continue to bet that they won't.
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