RBNZ survey shows drop in inflation expectations; Data seen to increase likelihood of an OCR cut on Wednesday; NZD weaker

RBNZ survey shows drop in inflation expectations; Data seen to increase likelihood of an OCR cut on Wednesday; NZD weaker
RBNZ Governor Adrian Orr

New data released by the Reserve Bank (RBNZ) on Tuesday is being seen to strengthen the case for an Official Cash Rate (OCR) cut on Wednesday.

The RBNZ’s Survey of Expectations, conducted between October 16 and 22, reveals New Zealand business managers and professionals see inflation further declining. 

Their inflation expectations for the year ahead fell from the previous quarter’s survey, from an average of 1.71% to 1.66%. Expectations for two years ahead dropped from 1.86% to 1.80%.

The RBNZ is tasked with using the OCR to ensure inflation is between 1% and 3%, and there is maximum sustainable employment.  

The Survey of Expectations prompted Westpac economists to revert their November OCR forecast back to what it was a few weeks ago.

They no longer believe the RBNZ will keep the OCR on hold on Wednesday, and have re-joined the majority of bank economists who are picking a 25-point cut to 0.75%.

However they no longer believe the RBNZ will cut the OCR at all in 2020 and 2021, as house price rises will see the economy firm up.

Westpac chief economist Dominick Stephens said: “Last quarter, this survey revealed a drop in two-year ahead inflation expectations from 2.01% to 1.86%. The RBNZ cited that as one important factor in their decision to cut the OCR 50 basis points.

“Our suspicion was that the survey would rebound, as the data are often volatile quarter to quarter.

“The fact that expectations actually fell further will be quite concerning to the RBNZ, increasing the chance that they will cut the OCR tomorrow…

“Usually, information released one day before a Monetary Policy Statement (MPS) would be too late to affect the RBNZ’s decision, and therefore we would not normally change our call on the eve of an MPS.

“But today’s Survey of Expectations is different. The RBNZ receives the survey results well before they are released to the market, so today's numbers were known to the RBNZ early enough – they just weren’t known to anybody else.”

The NZ dollar was down about a half a cent against the US on Tuesday.

Kiwibank senior economist Jeremy Couchman likewise noted the downbeat data; providing this commentary: “The RBNZ has determined that past inflation has a more significant influence on price setting behaviour than forward looking inflation expectations.

“So monetary policy has to work harder today, to influence inflation tomorrow. Hence the 50bp cut in August was an attempt to lift people’s heads.

“In the weeks following the Aug MPS, RBNZ Governor Adrian Orr noted in an interview with the Australian Financial Review that a dominant domestic driver behind the MPC’s decision was inflation expectations.  Inflation expectations were “…starting to decline and we [the MPC] didn't want to be behind that curve. We want to keep inflation expectations positive - near the mid-point of the band.”

“Today’s result suggests that the outsized 50bp cut back in August has failed to turn the inflation expectations dial. And this adds further weight to our view that the RBNZ should cut the OCR tomorrow to 75bps.

“Momentum in the NZ economy is fading, backed up by business confidence surveys’ measure of firm’s own activity outlook and last week’s weaker labour market report.”

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Is this Stevens required or asked by our great reporters, to give REASONS why prices are to rise in 2020?

Bollocks , there is simply no evidence that any prices are going to rise anytime soon , ALL commodity prices are down , and there is still massive over-capacity in factories worldwide

No price rises?

You need to pass that info on to the the Fuel companies, Electricity generators, Insurance companies, Councils, and the Government.

Is this Stevens required or asked by our great reporters, to give REASONS why prices are to rise in 2020?

"However they no longer believe the RBNZ will cut the OCR at all in 2020 and 2021, as house price rises will see the economy firm up."

These guys from Westpac are dreaming! Unless we see a miracle turn around in the Global economic situation I believe the the OCR will be cut to zero by the end of 2020.

Zorro has been wrong many times and he will be wrong on this too.

The bank economists will be popping the champagne as we speak on this bad economic news, which is ultimately good news for banks. Keep cutting boys! Keep pumping that housing ponzi!

I dont think it's a good news for the banks if we cut it to 0% or nagetive interest.The reason simply is that it's impossible that to ask people to pay bank money to put their money in to the bank. The actually mortgage rate won't be getting to 0% either. Banks will still have to pay the interest to people who put their deposit in the bank. So less profit for the bank.

And this comment sums up all that is wrong with our current banking system.

Take a look at basics, banks started as a way to mind peoples money and put it to work. A person with $100 spare cannot get much of a return, but 10 with an accumulated $1000 could. So the concept of a bank was to look after peoples money, put it to work in a way that produce a real return (profit), and pay the owners of that money a portion of that return. Costs come out naturally, but it is really that simple.

The problem is human nature. Bank managers are seen as the people with the money, not their clients (when the GFC occurred who did the Government bail out?). Bank managers are thus able to influence policy and as a result of that now a depositor's funds no longer belong to the depositor, they belong to the bank (when you borrow from the bank for a mortgage, who owns the money you borrowed?) Banks no longer feel they need to produce a return on money loaned to the bank by depositors, so in effect they don't. Bank fees cancel out virtually any interest paid. The rip off is out of control and Governments are complicit, willingly.


As a bank depositor,I become an unsecured creditor having in fact made a loan to the bank. The bank does not own that money.

i have no doubt the ocr will be cut, the last cut did nothing, we have next to no wage inflation as we keep importing 1000s of workers to wage inflation low for business.
its time to rethink how we go about pumping up the economy, massive infrastructure spending comes to mind, we need a whole new hospital out south and north of Auckland due to population growth, we need a 4 lane motorway to whangarei, we need to extend the 4 lane motorway from wellington further north, we need more drinking water storage for most of the big cities.
there is plenty of things for the government to spend on and get the economy going rather than rely on importing people

Low interest rates are here for a long time.
Even “The Man” didn’t predict interest rates to go as low as this!
Then again I didn’t think sufficient people would vote out a successful government being the National Party at the last election!
That’s right, 3 loser parties with no business acumen pooled their votes to outnumber one party.
What a stupid system MMP is.
Reality is that the interest rates would not be this low if National was still in power as the country would be far more successful financially.
If yo want interest rates to stay low and house prices to continue upwards in the years to come, vote for the 3 loser parties!

Too little, too late now.. whichever at the top to administer this.. the signs are everywhere, started when the last captain/JK abandon the ship, tradewars, brexit, currency wars/intrinsic value manipulation, no cgt, no dti, worldwide the same issue appeared, more and more in banking sectors worldwide tightening the belt/cutting their work force. OZ got that deposits insurance more generous, the current top kiwis being briefed about it - hence that 30K-50K split govt. deposits guaranteed..even that for next April/2020? - .. then? surely we all received those email notices from most of the banks here (I knew none of us willing to admit that).. change of T&C, clauses about the savings, Deposits settlements time frame.. he he.. - Like Mr. Orr advise folks, spend.. spend.. spend.. (just not in NZ, travel overseas, cruises etc.) - If you're lucky in term of timing.. then you probably already spread the net risk.. not just on different portfolios.. but also on different countries risk outlook. GBU all - brace for impact.

Cough splitter...Nats successful government? Why did Jonkey abandon ship then Man?


During Key's National Government, debt as a percentage of GDP went from 9.1 per cent in 2009 to 24.6 per cent in 2016. National also blew a $2.8b surplus Labour had in 2008 while at the same time driving education and health into the ground.

As for you crying about low interest rates and higher house prices under COL, if you really believed that you would be voting for them yourself. COL has hardly being a boon to the property market e.g. FBB, 5 year bright line, ring fencing losses.

The Man does not do facts only ideology and a blind faith in CHCH property.

HG - I think you forgot to mention during the Nats time debt rose because -
The Economy was in recession from a drought when they came to power
Followed by the GFC
Followed by the country losing its second largest city to an Earthquake
I think all those massive issues were handled extremely well by the Nats.
In comparison the COL have come to power with the economy in good shape.
Since coming to power the COL have done some good things like the FBB but totally lost the trust of the Economy, and that is a serious problem for all of us.
Sure there are International headwinds but so far we are not effected, or terms of trade are at record levels there is no reason our economy should be in the doldrums other than having an incompetent Government !

I think people in Christchurch will take issue with you as to how national handled the earthquake especially brownlee

Is our economy in the doldrums? Fonterra milk price looks to be best yet, beef + lamb prices higher, Kiwifruit farmers making more hay than ever, Xero over 2 million subscribers and profitable.Confused but when I read the comments here that is often the case?

Good, balanced comment.
Having said all that, the Nats did also have the benefit of The RBNZ having lots of room to cut the OCR to stimulate the economy.

its the imported people building that stuff

Globalisation baby!

Oh yeah! Give me some more of that neo-liberalism baby!

gotta love that invisible hand shovelling in cheap labour

We should globalise the pension. It's far cheaper to fund old folks' lifestyle living in a developing country, for instance.

we already do, JK changed the rules so pacific islanders could go home and still claim a NZ pension.
many of my neighbours have taken it up sold their houses at the peak and gone to sit in the sun

Question then is, how can we up our exports of pensioners?

Well we have a government that are pretty good at impersonating the Nats, and a finance minister hellbent on mimicking William English in terms of fiscal conservatism. They are chickening out and moving to the centre. Doesn't make sense. They will lose the battle for the centre.

They are leaving it too late. The economy will be well and truly in the doldrums by June next year, and they will pay for that in the election.

Yep I predict the economy is going to tank as soon as the summer is over. A cut now and again early next year and when that doesn't work its all over baby come election time this COL is gone.

C'mon even after Nat have to steroid up the recent ex. AirNZ bozzy into top helm, then that little distractions from Green (I mean the nice suited recently 'Sustainable' party) - which oddly all came about after the JK visit to the overlord No 1 at CCP? - Yes & yes they'll give voice gathered to Nat.. sure. But really have a look on this overall worldwide..capitalism-neoliberalism silent but firm endeavour. The domino stack games really now on the rattling wobbling board. I wonder what is the magic wand that National has on this position. Google those stats concerns worldwide - past hints; WWI & II, question is how bad the 'WW' event will be affecting NZ? - if we are part of it that is.

yep exactly.
If the coalition have any hope, they need to be working hard now on bold initiatives for Budget 2020.
That would be far better than election promises, because Budget initiatives are formal, committed initiatives. Rather than lame election promises which can be broken...
But what can they do? Infrastructure projects have long lead in times. So even if they announced big kahunas in 2020, construction commencement would be at least 2023.
What they COULD do in budget 2020 SHOULD have been done in Budget 2019.
They've made some brain dead policy decisions. One of them was to can Special Housing Areas. Although not without their flaws, they were well suited to stimulating house building.

..It's still.. if using standard 25 basis points, 4 more to go before reach the nice round figure. Can anyone helped me on one things here? - A lot of initiatives for our current youth in NZ, to be a prudent saver first on their $ awareness education matters. But grown up advise is the total opposite, spend.. spend.. spend. - Do as I say, NOT as I do - Don't drink, only grown up drink. IF older generations really care about their well being? - the most responsible way is to teach the kids to borrow & spend, with that Banks will start to get approval from society to administer loan for 50-70yrs..buy/own our kids future life time..enslave them. Or is it Not? - We need to STOP this misinformation education to our kids, if we all agreed that Savings is a bad thing.

It doesn't have to be mindless spending on the first item you lay your hands on.
Domestic consumers going into a binge on China-made goods or American service platforms won't be able to save our economy for longer than one quarter at a time. Instead if consumers pay a premium to switch from foreign-made goods to locally-produced stuff, the extra spending could go a longer way.
Some reverse globalisation is necessary; fortunately, the consumer market doesn't work in the same manner for bulk commodities such as dairy and timber.

"The RBNZ has determined that past inflation has a more significant influence on price setting behaviour than forward looking inflation expectations."

TOAB, you believed the RBNZ to be infallible, you need to give Orr a ring and set him straight. What was it you said...

"by nymad | 25th Sep 19, 5:23pm - Well, time series theory is inconsequential here anyway in the scheme of things. If you have some understanding of martingale sequences/unit root hypothesis it might be of some benefit. But somehow I doubt that. Ya just need to know that the OCR is a tool used to target future CPI movements. It is not a tool that reacts to past CPI levels."(https://www.interest.co.nz/bonds/101841/official-cash-rate)

If you bothered to read the directly following following paragraph...

"So monetary policy has to work harder today, to influence inflation tomorrow."
tomorrow = future. Just FYI.

The idea about a target interest rate is that it is (seemingly) exogenous. Thus changes to this cause changes in the target.
You can misquote/misunderstand bank economists all you wish. However, you will still be wrong.

No. I responded with:

"by HeavyG | 25th Sep 19, 5:33pm - If you were the RBNZ Governor and you were setting the OCR would you want to know the previous quarter's CPI? Yes or no answer."

To which you answered:

"by nymad | 25th Sep 19, 5:39pm - ... In a forecasting sense, you couldn't care less what the previous one quarter CPI figure was. You want to know what the CPI levels are likely to be 12 months following your OCR decision."

Looks like the RBNZ does care what the previous CPI was. Who's wrong?

Yes. And how is that wrong?
If you are targeting 2% in the future, that is your target.

From an empirical perspective, you wouldn't care less what the previous one quarter is. That isn't how empirical forecasting works.

Yes. Past CPI figures matter - they are endogenous of future CPI.
But that transcends the one period lagged value of CPI. Hence why I said in the original comment, that you quoted, going into the time series theory is well above your pay grade. Thus I just put a succinct summary in that the OCR is not a backwards looking tool, like you repeatedly imply.

So, again, well done for misquoting.

Who's misquoting now "OCR is not a backwards looking tool, like you repeatedly imply." I have never implied this, I have maintained that historical CPI is relevant when setting OCR. Until now you have denied this, however you now state "Past CPI figures matter - they are endogenous of future CPI."

I shall be bookmarking this admission for future reference.

Whenever you say "(previous quarter) CPI \neq 2, computer says drop OCR", that implies that it is purely a myopic retrospective setting.

I have never said future CPI isn't a function of current CPI. I say (simplistically) you don't set a target rate based on current levels, but expectations for the future levels. Again, you misunderstanding, despite the simplification. Obviously this all gets messy when you start considering the endogenous nature of the monetary system. But this is the basic mechanism.

Interest rates are long run (again supposedly) mean reverting. There may exist serial dependence, but to say that you set current policy on the previous quarter's value only (as per above, and all your posts), would imply a stationary process. That probably means nothing to you, but it is a very good reason as to why comments like "CPI \neq 2, computer says drop OCR" are stoopid.

Well done HG, you were clearly right on this one

Are we getting a Christmas present or not ? Rate cut and Helicopter Money would be nice for both the have and have not camps. Come on Me Orr. Think and do a Ben.

Rate cuts and helicopter money will do one thing - confirm to us all how bad the economy is for those possibilities to happen - not that most of us don't already know! In that case, will you spend? I won't....And, you're right. They're probably both on the way.

“Today’s result suggests that the outsized 50bp cut back in August has failed to turn the inflation expectations dial. And this adds further weight to our view that the RBNZ should cut the OCR tomorrow to 75bps.

Hmmmm... - incoherent econ-babble - we, the readers deserve better.

Without eurodollar growth, there is no more positive spin from globalization. The world is left instead to deal with this “secular stagnation” without any frame of reference to understand it or the very negative global effects.

Using the latest data for China and global trade, what you find is that China is quite a long way away from OK. And by extension, everyone else around the world who required globalization running through China for stability in their home countries. Link

There are NO inflation expectations ............. ZERO and if you need to get a reality check just look and PRODUCER PRICE INFLATION (PPI) , its practically NEGATIVE so there is nothing feeding into CPI

Hmm... 19 years of above "normal", extreme house price increases and the economy hasn't firmed up yet...

More and more disposable income having to be saved towards the deposit for a home...

Inflation, credit expansion has eroded the purchasing value of a $ to practically nothing, but hey, let's keep doing the same thing over and over. One day we might hit the jackpot and get a different result..

What's the difference between hyper inflation and normal inflation... only the time it takes to realise your "money" is worthless...

As often, I'll go against the grain, I think the NZ economy is doing OK, I believe it's in better shape than most believe and not on the edge of a precipice. I still stand by my forecast of September, that by March 2020 house prices will reach all time high values, including in Auckland. This will provide further confidence the the NZ economy (rightly or wrongly but this is a different topic)

Inflation keeps going down at the moment. It might reach below 1% when we get to next year. What makes you think March 2020 house prices will reach all time high values?

Fair question, I have been investing in the NZ RE market for 25 years and I'm not prepared to answer it in a public forum. I am though, prepared to be judged on my predictions.

I would also like to add that most people largely underestimate the time it takes for OCR cuts to result in boosting the economy. We have no idea yet of the effect of the August .50% cut onto the economy, it is simply too soon.

The Reserve Bank is playing silly-buggers with us ............ and fudging the figures .

Inflation is non -existent , and in our family case we are experiencing negative inflation .

My personal circumstances are a case in point.........

Having acquired an electric car, our total fuel bill has reduced dramatically , projected to be $2,500 p.a.
Our vehicle insurance costs have decreased when we changed insurers
Our power costs have been unchanged for 24 months with only seasonal variations
Our Broadband , tel , data costs have reduced , we now get TV channels included so we got rid of SKY TV
Our rates are still below what we were paying when we were under North Shore City council
Our household food expense has been static year on year , and has only seasonal variations
Our spend on clothing & footwear expense is down , we are buying online from Alibaba & other Asian sites
My wife and I flew to the US for a month in June , and it was the cheapest holiday we have ever had , ever .
My wife has found an Asian hairdresser who operates from home at a fraction of the cost of a mall hairdresser
Our spend on white goods and electronics has been ZERO this year , we dont need anything new in this area and my new Mobile fone in 2018 was included in the contract which did not increase

Our Mortgage is fully paid up and we have no debt whatsoever and are able to save ...... astonishingly around more than 50 % of our income .

Apart from not knowing where the hell to invest this money , we have never been is such a sweet spot in my entire working life

An often-repeated mantra of central bankers is that lower rates will stimulate the economy and higher rates will slow it. Currently, central bankers are once again deploying this claim, in order to justify a further reduction of interest rates to zero or even negative territory with the claim that this is necessary to stimulate the economy. So far, commentators and journalists have not challenged this central banker narrative, as it had been extensively propagated over the previous decades and is accepted as fact by most. This negative correlation between interest rates and economic growth, and also the idea that causation runs from interest rates to economic growth is so well established in everyone’s consciousness that we simply assume there is abundant empirical evidence to back it. Link

Where is that inflationary growth after the RBNZ cut interest rates in half three times since July 2008?

Don't you worry, your Alibaba purchases will go up in prices by 15% starting from 1st December. as GST on purchases under $400 is kicking in .
Happy now?

@andreas , it matters not one bit , my work shirts bought online are top quality Van Huesen and are 50% cheaper than the same label in Auckland , so 15% GST will make no difference to my buying decision

And now you try doing all that again as a young person who has extremely low wage rates (compared to other costs), a big student loan and faces a massive obstacle trying to get into the housing market considering the prices. Stable housing generally precedes a family, hence we see birth rates plummeting.

It is no surprise that inter-generational angst is probably at an all time high. Enjoy it while you can, if it keeps going that way, the have-nots are liable to upend the system to be more in their favour.

It's not about inflation,it's about growth. No growth is a scary place obviously,there be monsters

Check out the financial institutions lending survey

He won't cut to do "the unexpected", in order to now boost confidence.....

Where's that Kiwi gone? Oh, there it is! 75 US$ pips higher and a cent against the Aussie! Has something happened, or not?

Westpac will now wish it had not joined the crowd,though I too thought the OCR would be cut today.

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