BNZ economists are eyeing a longer period before the Reserve Bank raises the Official Cash Rate (OCR) from its record low 2.5%, and Deutsche Bank has joined the chorus of economists forecasting the OCR is likely to remain on hold until the second half of 2012.
This has come despite figures showing economic growth of 0.8% in the September quarter, above the median economist expectation of 0.6% GDP growth. The Reserve Bank had also forecast 0.6% growth for the quarter.
BNZ head of Research Stephen Toplis said downward revisions to growth in the December 2010 and March 2011 quarters indicated there was more spare capacity in the economy than previously thought, meaning there was not as much to cheer as the headline GDP figures indicated this morning.
December 2010 quarter GDP growth was revised from 0.6% to 0.3%, while March 2011 quarter growth was revised from 0.9% to 0.7%. Stats NZ said this was due to revised methodologies for manufacturing data.
"The increase in spare capacity won’t be the same as the downward revision to activity but it should be sufficient for the Reserve Bank to conclude that inflationary pressures are not as great as had been anticipated," Toplis said.
"Accordingly, not only will the [Reserve] Bank feel comfortable with its current view that there is no need for a cash rate hike until H2 2012 but it may even lend support for a slightly longer wait than currently forecast," he said.
Deutsche Bank economists moved their first expected hike in the OCR from June 2012 to September 2012.
Depends on EU crisis
ANZ economists also noted the revisions made to previous growth figures.
"This matters, as the level of GDP is what goes into the Reserve Bank’s assessment of the output gap, or the level of spare capacity in the economy that provides the “demand-pull” element of inflation (as opposed to cost-push, from oil prices, for example). The upshot of this is that there is no threat to the Reserve Bank’s plan to leave the OCR on hold for the foreseeable future," they said.
"We have pencilled in the first Reserve Bank rate hike for December 2012, but the timing is dependent on how the current global turmoil feeds into commodity prices and bank funding costs. The process of policy normalisation will be stop-start, reflecting our view that the global situation will not be resolved quickly, and that inflation looks to be in retreat for now."
ASB economists kept their expectation for the first OCR hike at December 2012.
"We do not expect the Q3 GDP outcome to change the RBNZ’s stance much. Manufacturing strength in Q3 is likely to prove temporary: it was driven primarily by livestock slaughter, which is likely to abate in Q4. Moreover, recent manufacturing surveys suggest core manufacturing activity began falling in the closing stages of 2011," ASB economists said.
"A bigger boost from the RWC over Q4 may temporarily offset that loss of momentum, but the RBNZ will be looking very hard for any further signs that export‐focused sectors of the economy are getting affected by slower global growth as Europe’s debt crisis rolls on," they said.