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ANZ economists see the RBNZ swooping in to stimulate the economy by cutting interest rates this month and then again in May, as the risk of a recession looms; Other bank economists call for calm and more targeted govt spending

ANZ economists see the RBNZ swooping in to stimulate the economy by cutting interest rates this month and then again in May, as the risk of a recession looms; Other bank economists call for calm and more targeted govt spending

ANZ economists are forecasting a 50-point Official Cash Rate (OCR) cut as soon as March 25, followed by another 25-point cut in May, as they see “clear risks of a larger slowdown or even recession”.

The Reserve Bank (RBNZ) kept the OCR on hold at 1% at its last review on February 12 - before coronavirus really started spreading beyond China and spooking financial markets.

It expected the economic impact of the virus to be short-lived. While it removed an OCR cut from its forecasts, the RBNZ said it would act if it needed to.  

Yet ANZ economists now see a “marked” global slowdown as “guaranteed”, due to both demand and supply disruptions. In other words, not only are people nervous about buying goods/services, but some of these goods/services aren’t actually being made/carried out.

Supply chain disruptions can be seen in the drop-off in global shipping movements for example, with ANZ economists understanding some vessels are carrying cargo well below full capacity.

ANZ’s China Research team estimates the Chinese economy as a whole is running at around 20% of its typical capacity utilisation. 

What’s more, there has been a 24-fold increase in confirmed COVID-19 cases outside China in the past 23 days.

“China is New Zealand’s biggest trading partner by far, and the impacts of that were already looking pretty bad. But now the focus has widened well beyond China, with the prospect of disruption and social distancing in other countries presenting new and significant risks,” ANZ economists said.

Furthermore, they noted the risk of a breakdown in liquidity availability for the corporate sector.

“In this case, the outcome for bad loans, defaults, bankruptcy and employment could be severe.”

Even once there is a recovery, they believe the scars will take time to heal.

They recognise that with interest rates already rock-bottom, it’s government spending that will need to do the heavy lifting to support the economy.

"A lower OCR can’t fix the fundamental problem, of course, but it can help by lowering the NZD, easing financial pressure on businesses (by easing debt-servicing costs, which could be very important), helping guide expectations, and helping facilitate the recovery,” they said.

"We have been critical of the structural damage brought by prolonged super-low interest rates in economies that are going along perfectly well, but this is something else entirely.

"Economies are anything but fine; excessive risk-taking in this environment is not going to be a problem. Monetary policy can help. The OCR should be lowered rapidly…

“If the situation continues to escalate, then unconventional policy can’t be ruled out down the track.”

ANZ economists also believe the Government needs to do more to directly support affected businesses.

They forecast New Zealand’s gross domestic product (GDP) stalling in the first half of 2020 and a gradual recovery from there.

As for China, they’ve revised down their first quarter GDP growth forecast to only 2% year-on-year. 

"Although the outbreak is no longer spreading as it was in China, the economy will be reeling there for some time, and ‘business as usual’ remains a long way off.”

The commentary from ANZ economists follows them on Friday saying a recession looks "more and more likely by the day".

Central banks need to be measured to maintain confidence 

ANZ's former chief economist, Cameron Bagrie, has a different view on the usefulness of interest rates cuts in response to coronavirus. 

He tweeted: "Central banks can’t fix coronavirus, fix supply chains or make people travel again. We risk wasting bullets trying to fix something we can’t solve. They can try an ease spillover effects into the demand side of the economy as confidence dives but I’d be conserving some bullets."

Meanwhile ASB economists called for "cool heads". 

"With such an event, wider government policy should be the first cab off the rank. Government has a vital role to play in co-ordinating the nationwide response and providing targeted support to impacted sectors," they said.

"Monetary policy can still help, and it is becoming increasingly likely the OCR will move lower if the impact of demand looks to be long lasting.

"Our OCR forecasts are under review. Importantly, the Federal Reserve and Reserve Bank of Australia interest rate decisions are due before the RBNZ.

"An OCR cut as soon as March is a distinct possibility if the outbreak spreads and if other global central banks trim their policy rates.

"It is imperative that the RBNZ (and other central banks) remains measured, given that they have an important role to maintain confidence."

Kiwibank economists were likewise less strident than their ANZ counterparts.

"Fiscal policy is the policy needed here," they said.

“But we continue to expect the spill over into general business and consumer confidence to also justify strong RBNZ policy response…

“Kiwi market pricing has moved aggressively this morning. An RBNZ rate cut is now on the cards for later in the month.

“We have held the view that another rate cut to 0.75% will be delivered on the back of the Covid-19 outbreak. We currently have a rate cut pencilled into our forecasts for August, with the chance of delivery in May.

“The probability of a cut in March has clearly risen. And in terms of size, a 50bp move may be preferred to 25bp. We wont rule anything out.

"To quote an ex-RBNZ official, "When the economy is burning, you just keep throwing water at it, even if it evaporates".”

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If people are worried about the pandemic situation, this won't make much difference.

The ASX is in freefall


ANZ economists are "forecasting a 50-point Official Cash Rate (OCR)" More like town cryers trumpeting to the public that central banks to act as soon as possible. I hate to say it but what a pack of plonkers trapped in almost Kafkaesque institutions driven by hucksterish communication strategies.


Sixty percent of bank lending is extended to one third of the richest, creditworthy households to invest in low regulatory risk weighted, collateralised residential property speculation.

If low interest rates are a consequence of diminished GDP qualifying growth endeavours, fewer property investors will qualify for bank credit and high RWA bank capital lending will certainly be further starved of the necessary credit to grow the productive economy.

Great Kafka reference

Great Kafka reference

Most institutions seem to be in this mode, particularly when you least want them to be.

Ohhhh baby gimmi the juice!


An OCR of 0% is not going to help a bit at this stage. By the time any effects of this start to hit the market we could be up shit creek without a paddle if the virus continues to spread. Rate cuts cannot work if everything else falls over like the markets keep crashing, 1000's start loosing their jobs and then the housing market collapses. Time to buckle up and get into the brace position, all the engines just stopped.

Of course it will Carlos, that's extra cash in the pockets of your average Kiwi. Stop being such an alarmist. They won' cut 75bp either, 25bp sure.

And it's losing (apologies for the pedantry)

That extra cash is not free though, you'll still need to pay back one day! If covid-19 is still not under controlled and getting worse within six months..I will start thinking whether most small businesses could still afford that amount loans or not...

Keep up CoH, I'm referring to lower mortgage and debt payments, not borrowing more money.

but it won't work in a deflationary environment, who's going to lend if house prices are falling? It will just make money conditions tighter.

Does this logic not apply? Source

An OCR cut doesnt always mean that bank willl lower their interest rates, escpecially when OCR is under 1%. Managing the risk is part of cost for the loans when there is a recession happening. This might result that banks will tighten up their lending restrictions further more. It could bring nagetive impact to the economy.

But it's not a worry because it's the younger generations who will have to pay for this lifestyle preservation. All's good.

Less cash in the pockets of people without debt relying on interest payments to survive. I don't think you gain anything out of it except increased residential property speculation.

Aye & some seniors who have been tapping along quite independently, taking care of themselves, are now going to have their budget come under real pressure. That can mean reduced domestics, diet, heating, doctor visits. Already aware of some resorting to cancelling health insurance. At an age and stage of life where vulnerabilities are exposed, this could impact on an already over burdened public health system quite drastically.

Might be prudent to look at career change to ...undertaking. Or coffin manufacture - those logs have got to go somewhere if they aren't going to China. New export industry, prefab coffins - just assemble with easy instructions.
Assuming we have 1% additional deaths (even though currently 2-3% now) of say 20% who get the virus, that's 10,000 additional deaths in NZ and at say $10,000/funeral that's an additional $100M going into that industry.......:(

Agreed, simply spiking the punch bowl won't keep the party going. We need to keep people spending and that means getting money into consumers pockets very rapidly. We know from experience that once consumer spending slows there is a long hangover period.

Can you feel it?
The Banks; the RBNZ; the Government and certainly the stock market are frightened this morning.
As late as Friday, it was 'don't look, and it might go away'.
This morning the start of real fear has commenced....And we, are just the first cab off the rank...

Yeah, looks like the old 'give it the weekend' hasn't paid off...

I can see it going to .10 which sounds weird but the RBNZ will not want to go to zero.
the next six to twelve months cash will be king
and those that have some put away will have some brilliant buying at the end of it

Let me know when to buy Sharetrader. Cashed up and ready to go.

What will be your buy trigger, sharetrader?

Fear the OBR. The cash may also deflate.
This is a time when good health and good friends become the real wealth.

Yes, when do you think we will get deposit protection, before or after haircut?
Is Kiwibank any safer as a SOE? Hard to imagine the govt allowing them to use OBR.

In current situation, lowering interest rate will not help much and may have negative side effect as than the only next option left will be negative rate - unkonow terroitory like corona virus - No one is defeinite what will happen in future.

It seems throwing cheap money in the market is also running out as an option but as fed and politicans have to potray that are serious and working..will follow that path being election year.


We all seen this coming a mile off. If one global event were to happen then the house of cards would fall. All the usual spruikers said that NZ was different and would not be affected by a thing like a global pandemic. The old schoolboy bankers are responsible with JK being the most to blame for this mess. All while making millions by selling to a foreign buyer and introducing lordship and making himself one first. NZ is fast becoming a banana republic.

Come on FB, they will be along shortly to tell you all is well and good in the world, pat each other on the back and spit bile at anyone who has a different view.

Its like the tribalism of "If youre not one of us, youre one of them. And we don't like them because they're not us"

Its pretty petulant from both sides. Multiple arguments, many with merit, written off and labelled either DGM or Spruiker for the sake of dismissal and ridicule.

The funny thing is, back in the days of normal economic policies and cycles everyone would eventually be right.

If OCR rates are cut as the article suggests I wouldn't be surprised to see a resurgence of dividend-producing stocks such as those in the energy sector.

Houses, Houses, Houses. Going up, up, up. We know where the money will go.

This would be more for the banks.

If planning for school closures, no large gatherings, people being quarantined at home, working from home, furloughed and put off. Then there could be a living allowance given to everyone for a month or two.
Much cheaper than having health system implode etc.

Lots of seemingly joy and slagging-off in these posts for the possible need for an OCR cut.
If a need to cut, then it is about economic stability - and that includes protecting your job which is now at a more heighten risk.
So, let the merriment continue!!!

Lots of seemingly joy and slagging-off in these posts for the possible need for an OCR cut.

I can only really see the cyncism. People are quite aware that the monetary paradigm is working against the average person. Economic stability is not being preserved; it's the status quo and egos / gravy trains of the ruling elite.

our company is already putting in place plans for most staff to work from home,
this could change the way many companies work in the future with the need for smaller offices and more flexible working arrangements

Likewise, I've recently moved into a role that is fully remote. It's the phase of transitioning out of the old role/handover that keeps me going to the office.

I'm in a role that could be almost fully remote. I could arrange all of my meetings into one day per week. However, my boss likes to see his team at work at their desks, so we all sit there with headphones in, typing away.

100 on my floor do the same thing. Every single one of us could be remote. No commute, no parking costs or hassle, no emission, no getting dressed in work stuff and having to do hair etc. Just work from home and have a much better, cheaper quality of life and probably more productivity.

These are potential unintended consequences of working from home.

If people are paid a salary or a hourly wage, then there is huge potential for gaming the system. And lower productivity.

I have often wondered why more people don't work from home given the technological advances, there is no excuse.
Why do we still insist on building skyscrapers in cities, in a shaky isle and funnel everyone in at the same time, causing congestion?
It seems mad to me.
If more people worked from home, we may not need the extra lanes etc.
Also quality of life improves, more family time and less casualties in a disaster, less emissions too.
More commercial buildings could be converted to apartments.

Not everyone has the same kind of job as you. Remote doesn't work well for some jobs, some teams, and some people.
When I've had the possibility to work remote I still prefer to spend 50% of my time in the office.

by Pragmatist | 29th Feb 20, 2:39pm
you think interest rates are going down further?

by Yvil | 29th Feb 20, 3:28pm
I do, swap rates are currently plunging and I cannot see any reason that would lead central banks to react differently than lowering cash rates to upcoming problems.

And? The point of this mindless re-post is?

Ice-cream, self-licking...

You're welcome, I knew you would appreciate my help

Your help? wtf you on about?

You asked a question, I replied to it and it seems correctly too, so wether you like to admit it or not it's help. You're welcome

No, your opinion isn't help, its your opinion.. and I didnt ask for it. It was of no use to me at all, it didn't help me solve a problem, so no idea how that qualifies as help.

Again, ice cream, self licking...

Its great to see that you're open to learning from others and prompt to give others credit, it will serve you well in life

Do you struggle to get your ego through normal doorways?

And just to clarify,
"I do, swap rates are currently plunging and I cannot see any reason that would lead central banks to react differently than lowering cash rates to upcoming problems."
Nobody has lowered the cash rates yet. Your prediction is yet to happen. So perhaps you should stop patting yourself on the back and crowing like a fool.

Misses the Point asks what the Point of my post is, how ironic!

The government needs to also start using fiscal stimulus as well. Getting cash into consumers grubby little mitts right now to prevent a recession might have the most immediate impact and I doubt anyone will criticise them for a rise in national debt given the circumstances.

Unfortunately, because there is so little infrastructure that is shovel ready, I doubt that the spending announcements due will have any immediate impact.

Cyclical infrastructure construction stock Fletchers started at 5.19 this morning and is ending about the same, on this swannish of days. Maybe punters are betting that Robbo will quickly announce more spending. Perhaps an upgrade to 8 lanes for the Shane Jones election highway to Northland with a couple more hospital boilers and a new footpath in the south island thrown in to stop them bitching.

You'd also have thought Auckland airport being in the front line of the covid19 effect would be smashed and not down by only 30c today. A relatively modest volume of 1.7m traded from a total 1.2bn on issue possibly suggests holders are not convinced the end of time is upon us.

Just a blip

The expansion plans of the Airport would come to its rescue in the longer term. These virus outbreaks/health crises usually are contained within a few months, as per past experience. This time, the effect could be more, but the Airport has a better chance of bouncing back, once normalcy returns.

Virus, or no virus, there will always be an Airport in Auckland.

I think the ANZ vanz are a bit over the top. Steady on fellas! This moment calls for cool hands & cool heads. If you can keep your act together over the next month or so, you'll be okay. Sure, it'll be a bit different, probably a bit ugly in places, but that's the opportunity as well as the crisis. The comment about friends & health is spot. We're all about to find out who our real friends are.

I think it is because they haven't priced it in to mortgage rates yet.
So are hoping for a 50bp cut to give them more profit to help pay the fine they just received!
Cynical bugger I am.

Do these cuts even get passed onto businesses? They are almost at the bottom of where they can go. They didn't raise them in better times, so now they have nowhere to move to. All they have really done is inflate the housing market. It seems they are being used more to control the strength of the NZ dollar than anything.
Also the ministry of health has said it is a low risk of there being a widespread outbreak in NZ. So do the banks know something we don't know?

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