BusinessDesk: Bollard still seen lifting rates this year, if not next week, as inflation stirs

BusinessDesk: Bollard still seen lifting rates this year, if not next week, as inflation stirs

Alan Bollard, RBNZ Governor will release the Q3 Monetary Policy Statement on Thursday, September 15

By Jonathan Underhill

Reserve Bank Governor Alan Bollard is expected to keep the official cash rate unchanged next week while signalling the stimulus of a record-low OCR will be removed sooner rather than later as inflation pressures start to stir.

Bollard will keep the OCR at 2.5% when he releases the Monetary Policy Statement on Sept. 15, according to a Reuters survey of 12 economists. By year-end the OCR is seen at 3%.

Economists have wound back their expectations for Bollard's urge to hike soon, even though he said in late July there was "little need" for the emergency 50 basis point rate cut in March to stay in place much longer. Since then the global outlook has worsened, thanks to Europe's sovereign debt crisis and America's near-default and credit rating downgrade.

"The near-term global outlook has taken a nasty turn, as fears of sovereign debt default have spilled over into a broader range of markets," Westpac chief economist Dominick Stephens said in his MPS preview yesterday. "Our view is that the RBNZ will hold off on rate hikes until December."

By then, Bollard will be talking to the next administration's finance minister.

New Zealand government bond yields are at their lowest in more than two years, following the rally in U.S. Treasuries. Prices of NZ bonds have surged this year even as the Debt Management Office sold a record $20 billion of notes in the year ended June 30.

Typically bonds prosper in times of economic downturn, which makes their fixed payments more attractive. But in the current environment, New Zealand's growth is robust relative to the rest of the world, even in the face of figures this week that showed the volume of building work put in place fell to a decade-low in the second quarter.

Next week's report will be Bollard's first opportunity to update his forecasts in detail since the June MPS, which had first-quarter gross domestic product of 0.3% and the consumer price index rising 0.7% in the second quarter. In the event, GDP grew 0.8% and the CPI in the quarter rose 1%.

The high New Zealand dollar is restraining imported inflation and creating headwinds for a primary sector enjoying relatively high global commodity prices. Domestically, a building boom in Christchurch may drive up prices of services and materials.

The trade-weighted index is well above the RBNZ's assumed track in the June statement of around 68.5 and was recently at 72. The 90-day bank bill is also higher, at around 2.96%, compared to the June estimate of 2.6%.

Bollard may lift the projected track for inflation in next week's statement.

Inflation expectations "remain stubbornly high," funds manager Harbour Asset Management said in a report this week. “We think the market is under-estimating the need for them to get on with things once the threat to the international financial system subsides.”

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"Get on with things.. once global threats disappear" hmm when will that happen? 2025? When we have a global currency?
Rates on hold for quite a while yet.

Lets add another major world natural disaster. The Arab countries with new islamist muslimbrotherhood militants trying to attack Israel .....
Nip is gonna be in big trouble for a while yet

I agree, the problems are not going to go away by christmas, if he wont raise rates now, things are not going to all of a sudden get better.  The debt in Europe and the USA is going up not down, how is that improving the economy exactly?

hehehe..."once global threats disappear"...exactly, they make it sound like its a 3 or 6month event....but then they are there to take in suckers $.....if they tell the suckers its going be tough even not losing money no one will give them their $, they will starve....

2025?  If you look at the build up to a burst and its climb down for previous major events its equal or maybe at 2/3rds....our bubble is 20~30 years in the 2025 doesnt seem un-reasonable....we are 3 years in now and we have not even blown up yet.....3~6 years of a collapse......3~10years rock bottom and then maybe a climb....

In a depression the oil price will collpase again, arab revolt looks quite likely....lots of other nasty disasters as well mind......

The the BBs retiring, if you believe the economist Dent then that alone is a big problem....

"world is gonna be in big trouble for a while yet"



Surely its about time Tehran  did us all a favour and nuked Tel Aviv?

We're still stuck in the short term mindset that keeps getting the US in so much trouble.
That you just keep fueling debt and worry about today, without the slightlest worry about how much of a mess you are setting up, for the not even very distant future.<

Then your Wi-Fi may no longer work as Israel is amajor hi-tech research&developer manufacturing. Also your computer system would rlose lose protection from RSA and other Cost protecting from sophisticated IT threats.... how would you count your 10000 TD?


 Something is definitely brewing over there again. Hopefully, Abbas will convince the world and succeed with his ideas – otherwise times aren’t good.

"If not next week"?? 

Is Mr Underhill a hobbit trying to hide (as per Frodo) or does has he just buried his head under a hill of sand?

High dollar, a broke indebted Government, no earthquake recovery, no construction industry, high emigration, weak employment and a remote possiblity of inflation when things improve sometime down the track?  All the ingredients for a rate rise???

Great comment Ivan - of course everybody who owes money in NZ are homeowners - not business people!  Let's screw the businesses more and more so that you can gain more interest on your savings and perhaps hope that who you work for are not one of those businesses who not only are suffering from there being no export market, because of our sky high dollar, but also higher interest rates than the rest of the world.  Then you can hope that they don't go bankrupt because they can't compete.  But don't worry, if you then lost your job, you could live off the additional interest you have made on your savings.



Saver? or you simply live off the income?

Saver? - If you are a worker and saving, raising would be bad, very's being un-employed suit you?

Living off the income? - If you are retired of course you are part of the two generations that  pillaged the planet and has left the next ones with Im not surprised you want more in that case.....morally bankrupt and all that.

The rates wont be going up anytime soon.....maybe you will see the OCR at 4% in 2 or 3 years, but far more likely it will be < 2%....because we will be in a depression.  But thats good for savers, their money will be worth more every day.....many NZers however will be bankrupt homeless and jobless.....

Be careful what you wish for...very careful.


 " If you are retired of course you are part of the two generations that  pillaged the planet and has left the next ones with Im not surprised you want more in that case.....morally bankrupt and all that."....harrrrrrrrrhahaha...steven is pissed we left nothing for him to pillage...hahahaha

Get back to work you bum and generate the wealth for us to live off.

Bollard will release little more than innocuous gas come Thursday....oh sure it may have the wiff of something solid in the departure lounge...but as usual it will be more of the same..

"Well er ...given what the Australians have done and in the light of the international environment ....we feel it's better  to hold off doing anything  that may look provocative to the Market.....or indeed like we have any ideas."

"So we will continue the policy of wait n see nothing....wait some more....keep a cautious eye on inflation  with a mind to shuffle  the numbers if need think  thats about aside from a few of the positives I have mentioned.....I'll take questions now." your telling us essentially that despite the Global situation we find ourselves confronted with and the very real possibility of a slow down in China......your going to do nothing....

"Er..... yes that's's what we've come to be the most comfortable know how they say everybody's a wise ass looking backward....well I'd like to think we are subscribing to that we don't want to make a"

But be fair bigC...the stonecutters make the rules...can't expect the ocr to start chasing the beast until after the election...then we will be told inflation prevention is a priority...yessiree


Cheers...Bernard ...i'd like to revisit it Thursday and see how close I got it in the wash up and obviously after the spin cycle . 

get on with it and raise rates - enough bailing out of property speculators

Maybe the heading of this story should be:  Fund Managers and Bank 'Economists' desparately looking for signs of economic 'growth' so they can craqnk up interest rates.... Alas the 'Green Shoots' are drying up and AB will be smoking them again....   

Sorry Mortgage Belt, I don't understand. I can maybe understand fund managers (although perhaps they'd prefer rates to stay low and equities perform instead) but why would bank economists want to crank up interest rates ?

Bank profit.

Maximise bank shareholders return at the expense of household mortgage holders. Nobody believes that banks are allocating certain funds for floating mortgages and longer-terms funds for fixed term mortgages anymore.   Any loan at a higher rate is a good/better rate as far as they are concerned. 

Also banks are trying to lock us in to fixed rates by scaring us about fictitious rate rises  -  then we can't go down the road for a better deal.

Look at the margins currently  -  largest ever for many years.

I think they want (some) inflation....that makes house prices rise and then ppl jump in.....panicing that they will lose if they wait....




They want " some inflation " , steven ? ..

... Inflation is alot alike dysentery , in that you think you have it under control ...... and then suddenly you lose the lot !

[ .. to parrot-phrase Mike Moore .. ]

Yes I believe so Gummy.....based on several factors...

Banks want ppl to borrow.....Firstly, confidence, and ppl are confident when they have jobs, businesses expand....its all good.....However to keep un-employment low we need to be seeing 3~4%inflation/growth...indeed our entire global economy is based on having about that number. If unemployment is low so most ppl have jobs and feel they can get another one easily then ppl feel more confident and they are more likely to borrow...and of course (secondly) house prices will be going up, which will "encourage" ppl to get a mortgage as soon as they can before its "too late".....

Thirdly banks are middle men, they make a margin whether inflation is 2% or if it starts to climb ablove that say 20% then ppl cant cope and default, but banks dont really care. In a mortgagee sale and with inflation they are guaranteed to get their money back, even if they lent at 95%, a few years later they get that 95% back plus the mortgagee to get to 20% takes a few years so there is no real avalanche of mortgagee sales....

Fourthly inflation is also a safety margin to keep away from deflation...if you try and keep inflation at say 1% or less then you are srewing it down do hard it could collapse....only pensioners with savings want a depression....everyone else is stuffed.

Now look at a depression and the banks lose their shirts....on the macro scale they borrowed at wholesale rates that look silly....when we have deflation and an OCR of <2%....and of course houses are dropping in value, who's going to take on a mortgage? At an OCR of 8% the banks 2.25% doesnt look so bad....but at say 1.5%?  how can the banks make 2% odd?  Mortgagee sales, banks get less than that 95% plus loose on expenses...they have to declare losses...tehy share proce goes down, no bonuses etc etc...

So yes IMHO banks want low to moderate inflation....2~6% is fine for them.....





 "....only pensioners with savings want a depression."...getting up your nose are we steven..soon you will be paying mine too...hahahaaahaahaaa

I have a real gut feeling, have for a while now..bit of deja vu realy.....Go back to the later Muldoon days where he put rent/price controls on to attempt to stop imported inflation.....The high dollar in its own way is doing in effect the same thing, The US is in big Asia this time, back then was the Oil producing middle east, ..and printing money big time.

The lid has to come off the kettle sometime...and will be when the dollar drops  (not bounce around) back down to real value long term ave......which was the 1st thing the Lange Government had to do... We are building for another very high interest rate in the next few yrs.....which is also pretty close to the tradtional 42 yr economic cycle, which also includes possible the next bubble....again maybe... the sharemarket, but not as agressive this time.

This deja vu gut feeling...the same sort of economic comments, backgrounds, where to invest, blah blah... I recon a lhand ful of older economic comentators may have the same gut feeling but as yet have no solid foundation or fundimentals to base this next round of Doom And Gloom this space.

Yes,  StepToe let's go back to the 1980's and get those mortgage interest rates to 21% - and destroy as many farmers, small businesses and householders as possible, thanks to global and banking manipulation. And let's allow the merchant bankers to profit from buying public assets, flogging them off at a huge profit and disappear.  Back to the future ....   Well the smiling global banker is beckoning us already on the billboards .... 

As back then, the critacl word is "imported" sois it a matter of "Yes lets get back to..."

Or OH crap histrory is just rolling over again as it does every 42 and 84 trs ( last Great dpresiion , and the one before that.

Or since history does roll over, more a matter of knowning it WILL happen and position ones self so to have leadt effect or better still do well out of it.


I don't think you have much comprehesion at all about banking. Banks dont care how high rates are, only how high is their margin and how much volume of lending can they do. They would much prefer to have mortage rates at 5.5% if their cost of funds was say 4.00%, than having mortage rates at 8% if their cost of funds was at 7%.

By the way, I think you're also confusing what a margin is - a margin is the difference their cost of funds and their lending rate. I trust you're not being niaive in thinking that their cost of funds is anyway near the OCR rate ? Look at the massive spreads banks themselves are paying between the OCR at 2.5% and deposit rates at 4% plus.

Yes margins are higher than pre-crash when assets (i.e. their security) was rising every day, and income (the borrowers ability to service the debt) was doing the same thing, but no where near the heights of yester-year - its just back to where its averaged historically prior to the boom years. 


GrantA - well, excuse my ignorance of the banking business model - I only speak for the household sector with mortgages trying to withstand the ongoing ups & downs of rates manipulation, fixed rates, break fees, and fear-mongering etc ... Do we really need bank economists constantly going on about the OCR increasing rapidly?   Have they ever been taken to account for their false prophecies?  When customers ask their banks on rate predictions- they always draw a blank -  they simply don't know/don't want to be drawn.  What other product or service do we buy where the price keeps moving around - always to the benfit of the seller?    

Why then have bank economists been 'warning' of rate hikes for the last 2 years (see archives of press releases) & yet rates have fallen or flatlined?   Why are they so keen to get borrowers 'locked-in" on fixed rates, if their margins are supposedly lower on fixed rates? 

Anyway, you run a good line of justification for your corporate masters....

I understand the observations that you make, but as you suspect, I have an incite into the truth. Bank economists (which I am not one if youre wondering) arent in the game of hooking customers into fixed rates, they simply make forecasts, and yes, they have got it wrong often through the past two years - by the way 99% of other bank staff are not permited to offer an opinion as its illegal so I would expect a blank look

But whilst economists have got it wrong from time to time in the past 2-3 years, during the biggest and most unpredicable events is 60 years (yes some saw it coming, the majority including 99% of the public didn't), so did the market. The market being the bulk of the global participants in the NZ interest rate markets.

That's going to keep happening as well because no one knows what will happen, but when they least suspect it, I think at some point the floaters will get a nasty shock as well - whether thats late this year or still 2-3 years away, who knows for sure, but my point is that economists make their best calculated guesses, but better to recognise it as that rather than attach some popularist conspiracy theory to it.



"during the biggest and most unpredicable events is 60 years"


If you listened to the likes of Steve Keen, you wouldnt have been surprised. If you took an interest in Peak oil and listened to the experts on its probable effects, you would not have been surprised.....what is surprising is few yet talk about peak oil production being the main cause.....and few yet seem to connect the decline in production with a recession/depression like no other......

So yes whil you keep banging the inflation drum, I'll bang the deflation drum...lets see who gets the nasty surprise...





Was your misspelling of 'insight' as 'incite' a Freudian slip? Ie the banks are inciting the masses/customers?! I think the changes we are seeing make the general economy too fragile for a return to 'normal' hence flat rates or cuts.

LOL yeah I noticed that too - I guess we'll see, as I say hard to be confident eitherway

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