Reserve Bank to look through food, fuel price shocks and keep OCR on hold til 2014, NZIER economist Eaqub says

Reserve Bank to look through food, fuel price shocks and keep OCR on hold til 2014, NZIER economist Eaqub says

The Reserve Bank will look through the current food and fuel price shocks and keep the Official Cash Rate on hold into 2014, the New Zealand Institute of Economic Research (NZIER) says.

Releasing the NZIER's latest Quarterly Predictions, principal economist Shamubeel Eaqub said domestic growth was steady but unspectacular as Kiwi households and the government spent cautiously and paid off debt.

"This is an essential part of the adjustment from the pre-Global Financial Crisis, credit-fuelled boom of the early 2000s but is making for a tough time for retailers and builders. A tentative lift in mortgage borrowing is promising, although business investment is still muted for this stage in the recovery," Eaqub said.

Global slowdown key risk for New Zealand

The biggest risk to the outlook for New Zealand was from a slowing global economy.

"The European sovereign debt crisis is spilling over to our key trading partners in Asia and Australia, which will dent our exports”, Eaqub said.

"We expect only 1.7% growth in 2012, recovering to 2.7% in 2013. We expect a gradual and patchy recovery because of uncertainties around the timing and size of the Canterbury rebuild and highly uncertain trading conditions," he said.

Price shocks could be on the way

Eaqub noted grain and crude oil prices had risen sharply in recent months. High food and fuel prices, if sustained, would hold back economic growth both in New Zealand and abroad, he said.

"A severe drought in the USA has lifted grains prices. This will also raise downstream prices like dairy and meat. While higher soft commodity prices are a boom for our farmers, consumers may face higher prices at the supermarket in early 2013," Eaqub said.

No interest increases until 2014

"Interest rates will be on hold until 2014. The economy is slow, there is little inflation and global risks are high. The RBNZ will look through current spike in global food and fuel prices, as they are transitory," he said.

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?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

6 Comments

Comment Filter

Highlight new comments in the last hr(s).

"Interest rates will be on hold until 2014. The economy is slow, there is little inflation and global risks are high. The RBNZ will look through current spike in global food and fuel prices, as they are transitory," he said.
 
Good to know that impoverished savers will have little to add to the expenditure element of the apparently slow econony GDP outcome.
 
And all the while costs are set to rise once again - as will the profits of the banks along with their employees and government sponsor's salaries as they certainly will adjust incomes upwardly to reflect these so-called transitory spikes in non-discretionary expenditure.

I think you mean the saved or de-savers.....not savers....Im a saver, I save as I earn....an OAP de-saves as you state........
regards

Savers funding the speculators.

Yet another reason to invest in property... the Reserve Bank is on the side of property markets.

inflate the debt away in other words!  Jezz......when will people get the fact that the RBNZ's sole purpose is to protect banks and their profits at all costs? Treason is a charge the RBNZ are guilty of time and time again along with anyone who has accounts with the Aussie banks

Hey everyone, get your heads out of the sand, we are on the brink of a massive explosion in the price of food and fuel. If you think it's hard to get by now, just wait a few months and see where we will be. I wonder what the govt will have to say about poverty then