The Reserve Bank (RBNZ) is signalling its intention to hike interest rates much more slowly than it loosened monetary policy at the onset of Covid-19.
RBNZ Assistant Governor Christian Hawkesby delivered this message in a speech finalised on September 15 and published today (Tuesday).
He contrasted the approach the RBNZ used in the early stages of Covid-19 to that it’s using now, saying that when there is a “material threat” of the RBNZ not achieving its inflation and employment targets, “the path of least regret is to move quickly and take large steps to provide more confidence that policy settings will be appropriate if the risks to the outlook eventuate”.
Hawkesby characterised the opposite approach as “tapuwae kōtuku”.
“It translates roughly to “considered steps”, and is an expression often used to describe the way to walk as a visitor onto a marae,” he said.
“The idea is to take small considered steps as you assess the environment around you. You are walking in the right direction, but slowly in case your assessment changes quickly (are your hosts friends or foes?).
“In the world of setting monetary policy, this translates to having confidence in the outlook for the economy, and inching in the right direction based on how the economy is likely to evolve.
“This is consistent with the observation that when there is a typical amount of uncertainty, and the risks are evenly balanced, then central banks globally tend to follow a smoothed path and keep their policy rate unchanged or move in 25 basis point increments.”
Hawkesby said the RBNZ's approach could be likened to an adaptable white heron (kōtuku), rather than an aggressive “hawk” (kahu) or a peaceful “dove” (kererū).
Markets change expectations
His comments come as some RBNZ observers were expecting the central bank to lift the Official Cash Rate (OCR) by as much as 50 basis points at its next review on October 6.
Hawkesby, after the emergence of Delta in the community prevented the RBNZ from lifting the OCR as planned on August 18, told Bloomberg the RBNZ actively considered a 50-point hike. The comment caught traders' attentions.
The prospect of a 50-point hike again became prominent after stellar June quarter GDP figures were published last week - the day after Hawkesby’s speech was finalised.
However, publication of the speech saw financial markets lower their expectations of a big hike on October 6.
ANZ chief economist Sharon Zollner and senior strategist David Croy said that while markets were on Friday pricing in a 35-point hike, they're now pricing in a hike of less than 25 points.
Down the elevator; up the stairs
Zollner and Croy said Hawkesby's commentary was unsurprising and aligned with their thinking.
"In short: down the elevator and up the stairs. It’s long been the way monetary policy has been run, and remains the case today," they said.
"Inflation risks are to the upside, but growth risks are to the downside. A measured approach is the way to go.
"Importantly, the RBNZ isn’t on a path of policy normalisation because the economy is back to “normal”. It’s normalising because the risks of not doing so (boom-bust risks) are beginning to outweigh the risks associated with the pandemic.
"But the economy remains vulnerable (particularly housing), so normalisation needs to happen in a considered and gradual way.
"We continue to expect the RBNZ to raise the OCR in steady steps (starting with 25 basis point hikes October and November) to a peak of 1.5% by August next year."
See the speech in full here.
69 Comments
Good decision. RBNZ should be independent in their decision and ignore Aussie banks front running the rates for them.
If the banks did the same thing in Aussie, they'll probably get a Senate enquiry with a 'please explain.'
Can't believe NZ is allowing bankies to get away with it.
What do you mean by Aussie banks front running the rates? I see that rhetoric on here often by commentators, but it might reflect a lack of understanding on how fixed rates work.
I saw no Aussie bank change variable rates. Recent fixed rate changes are due to increased wholesale rates (which, even with a retreat from this speech are much higher than a few months ago)
Do you understand how fixed rates are determined in financial markets ? And have you got any idea of the meaning of swap rates ? If you had at least a basic understanding of such elements, you would not be talking about banks "front running" the rates.
It's a bit embarrassing, to be honest.
In plain language more interest rate repression and negative real interest rates - hardly suitable given recent annual GDP(E) growth, recorded at 7.2042%, fueled by government deficit spending.
by Audaxes | 20th Aug 21, 5:00pm
But here’s the spanner in the works. Looking further down the track, Zollner believed interest rates would remain relatively low.
She believed the neutral rate was in fact below where the RBNZ picked it.
“Currently the RBNZ assumes neutral is 2%, and has forecast hiking the OCR to this level. But we think the neutral interest rate will continue falling, seeing the OCR peak at 1.5% this hiking cycle,” she said.
“Long term trends, including population ageing and declining potential GDP growth, have seen neutral interest rates decline across the globe. New Zealand has been no different.”Exactly - how does that extend efficacy to the canard low interest rates "stimulate" when in fact the opposite has been staring at us in plain sight since 2008 (2001 in Japan)?
Interest Rate Fallacy:
Low Yields = TIGHT money
Bank Reserves don't matter,
QE not money printing
Curves Need No R-star; Economists Need R* To Decode CurvesR* is just the plugline or balancing factor that attempts to make sense of why neither ultra-low interest rates after the dot-com recession nor QE in the aftermath of the Great “Recession” failed to work as they “should” have. For policymakers, policy rates went low and lower but since no great recovery resulted, especially from the QE’s, it is merely asserted that R* must have been that much lower still. From this view, QE was surely powerful “stimulus” but it didn’t appear to have worked, therefore R* was just that much lower than QE got the policy rate to. If “real” policy rates had been pushed down to -10%, the still lack of recovery would have left Fed officials claiming R* surely was -10.01%.
The RBNZ are a bunch of clowns, stealing Maori culture to look good and hide their ineptitude behind a screen of political correctness.
They keep using Maori words but they don't give a flying sh.t about Maoris and any other parts of the NZ population badly affected by this stupid ultra-loose monetary policy whose only real effect has been to promote parasitic housing speculation, inflate the housing Ponzi beyond any financial common sense, and forever close the opportunity for a big portion of Maori and others to be able to buy and own their own house.
If I was a Maori looking to buy a house, I would be monumentally p...d off by this BS.
I find it difficult to understand why you would use Maori terms like that when describing central banking policy.
Especially when it appears to be that RBNZ policies are resulting in Maori being worse off.
Wellington appears to have lost the plot.
And where was the tapuwae kōtuku when removing LVR's last year?! That was a rushed and poorly considered move which result in a 30% rise in asset prices in one year (i.e price instability which is the opposite of the RBNZ's mandate!)
Wellington has always lived in its own little world. Pursuing intense Treaty interpretations gives them something to do other than talk about how ineffective they are at their actual jobs, so naturally they're all in. It's not actually about improving anything for Maori, it's about improving the lives of the extra civil servants you need to take on to talk about it.
A bit like when they replaced the green man at traffic light crossing with green women for a period of time.
That nice. But I'd bet women would prefer to receive equal pay as men instead.
It's easier to do gimmicks and catch phrases (be kind) then actually do meaningful change.
Speeches frequently use idioms to convey meaning and help the listener understand. Sure he could have used an English one such as "tread carefully" or "slow and steady wins the race", but I like the one they've used. Plus you get a bit of extra education about the country.
Correct. Virtue signalling via brown-washing is far more important in Wellington than fixing real-world issues.
https://www.stuff.co.nz/pou-tiaki/300406929/stark-differences-in-mandat…
I particularly enjoy all the made-up pidgin English.
kutarere (scooter)
motokā (car)
kirihimete (christmas)
Looking forward to the day some clown tries to tell us how to pronounce them "properly".
Thank you IO. Quoting from a colleague's article:
- God of the forest (Tāne Mahuta). “The Journey” states that the RBNZ “became the Tāne Mahuta of New Zealand’s financial system, allowing the sun to shine on the economy.”
- Guardian (Kaitiaki). “Guardianship” states that the RBNZ is the guardian of finance. But what exactly is it guarding? A throne fit for the Crown where its “legislated monopoly issuance of a local currency,” as described in “The Journey,” is now institutionally appropriated by benevolent naming.
- The prime source of finance (Te Pūtea Matua), translated in 1988 by the Māori language commission and not put to use until June 13, 2012 when it was used as the official Māori name for the Bank.
https://bitcoinmagazine.com/culture/new-zealands-past-putea-and-future-…
I don't agree that often with the above commentators, but on this we are in complete agreement - it is "brown-washing" as someone said above.
I doubt any RBNZ management had set foot on a marae or had the slightest bit of interest in Te Ao Maori before it suited them to signal their "virtuousness". Maori have been some of the most disadvantaged by their policies as well.
Yet to see any senior Maori there either despite a number of well qualified Maori finance professionals (I know there is a director). I find it utterly offensive.
I don't agree that often with the above commentators, but on this we are in complete agreement - it is "brown-washing" as someone said above.
Juliet Tainui-Hernandez is Assistant Governor and General Manager of Transformation and People. A lawyer by profession and a non-executive director on the board of Ngāi Tahu Holdings.
If I were Juliet, I would seriously question what the RBNZ is doing for her own people.
You can use double vowel instead of macrons so long as you are consistent. There is also a variation between whether you are using SI or different NI spellings for certain words as there is considerable iwi variation but then again much of the difference is lost when the language does not belong to the people anymore but to the government brand designers from wealthy neighborhoods in 2 regions.
Somewhere in New Zealand a maori female hospitality worker in her twenties weeps because she has no job no hope of home ownership and no political party to help her. Meanwhile a rich white guy uses a maori term to explain why he is going to make things worse for her.
Yeah thats female Jacinda's fault for not getting the country jabbed earlier, she only jumped into it when the Indian variant got here. That poor white fella aint responsible for that. Labour lets down its own people time after time, rising house prices and no jobs. At least house prices were relatively stable under National.
Yes the Cult of John Key. Is 80+ percent under his term relatively stable. Before he came to power he stated house prices were out of control. But the end of his term he was stating there was no issue with housing. It has been the Reserve bank that is responsible for the last years spike in prices through the removal of the LVR while reducing interest rates. This is some how Least Regrets, why didn't they snap LVR back on when they figured out what was happening.
I hope Jacinda stays for as long as possible and doesnt desert us for the United Nations, we need here in 2023 and 2026 to keep house price inflation at 40% percent per year till 2029 and we can all retire. John Keys reign had only minimal house price increases compared to her, a bit of a failure really. Worst thing on her front is that she is ramping up the costs of rent accross the country as well with all these extra costs loaded on to property investors.
They've painted themselves into a corner. They cant raise OCR quickly enough to control inflation without risking the property bubble bursting. I fear they will have to raise the OCR fairly sharply or the inflation rate will go over their mandate. Interesting times!... popcorn.
If it was a 50bps hike it'd probably be "One and done" because so much debt has accrued in the interim.
Anyway I'm less convinced now that they will raise. Borders reopening will drive wages down and China restructuring it's property market will put new emphasis on exporting to grow GDP.
Stockmarket will collapse any day now, Covid will get out of control even with high vaccination rates. Permanent micro lockdowns and businesses collapses soon.
I remember Graham Wheeler upping rates coming out of the GFC only to immediately reverse. We bounced back after the previous lockdown courtesy of window guidance and asset booms. This time unfortunately we are doomed. Get used to the new normal people.
What planet are these RB guys on ? ...In China, Evergrande and other property co's are having huge cash flow "issues", while Evergrande have people holding the managers hostage in their offices, till they get their money back ......while if you google the word "China" the first word to pop up is Evergrande !
The Chinese market is on holiday and has even opened up yet ! ....so who knows what's going to happen when it does?
How much of the residential property development that is happening in Auckland right now, is propped up by these Chinese securities, funds etc ?
Also a question for all you bankers out there - what is the the limit where your cash saved in a NZ bank account is safe from being "locked from withdrawal" or even taken, to recoup losses from mortgage holders ?
This is getting embarrassing. I don't think the RBNZ should make any public announcements at all, except to say 'Yes, we changed rates by x% today'.
They are not raising rates, and they are not going to 1.5% any more than the BoJ or ECB are. The RBNZ has not solved the low-interest rate trap with some magic formula that has eluded the Japanese and Europeans for decades.
I'm just waiting for the media to catch on; RB statements about rates are meaningless theatre.
Talking To Bill About Evergrande
While Evergrande’s real trouble is almost certain to make things uncomfortable and disorderly in RMB markets and for the PBOC (and other regulatory headaches), as I wrote earlier, I don’t believe this is something new nor emergent. In a way, it’s part of the same plan for managed decline.
Yes, I support this approach of the RBNZ, I think this undermines the trading bank economists who have their institutional bias and their line managers getting them to push a narrative to allow for mortgage interest rate increases and therefore increased profit margins. Hey! you guys have been caught out again and lost credibility in my eyes.
The RBNZ rebranding to Te Reo could not be more offensive to tangata whenua if they tried. How many millions wasted when they could have actually spent that time on better trained NZ mathematicians to produce more than the dribble predictions they have currently, better policy and a better chance at wellbeing for those who are severely discriminated against by RBNZ policies and practices. They might as well call their policies bodily excretions for all the weight and impact it has on those most vulnerable in NZ. (Sorry just came of an abuse in care research project and the RBNZ brand shift is beyond the grave in insensitivity, and without mathematical backing).
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