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RBNZ: NZ "markedly better" than most of OECD despite setbacks; Part of reason for high NZ$; Sees housing market recovery, 'but not time to use new tools'

RBNZ: NZ "markedly better" than most of OECD despite setbacks; Part of reason for high NZ$; Sees housing market recovery, 'but not time to use new tools'

By Alex Tarrant

The Reserve Bank is talking up New Zealand's economic outlook relative to other developed economies, and says this is one of the factors keeping the New Zealand dollar high.

In the central bank's annual report for the year to June 30, 2012, the RBNZ said that, despite setbacks - eurozone stresses had created uncertainty in the global economy, commodity prices had declined and New Zealand's trading partner growth had slowed - there were positive economic signs ahead.

Meanwhile, the financial statements in the annual report showed the Bank made a profit of NZ$118 million in the year to June 2012, down from NZ$144 million in 2011. It paid the government a dividend of NZ$160 million, down from NZ$210 million the previous year.

The RBNZ booked a NZ$38 million loss on its foreign exchange position during the year, as foreshadowed by in August. The Bank had booked profits of NZ$825 million in 2008/09 as it bought back New Zealand dollars at lower prices than it sold them for during its NZ$4 billion foreign exchange intervention in 2007 and 2008.

However since then, the rising New Zealand dollar has the Bank looking at paper losses of NZ$452 million, meaning, on paper at least, net profits so far of NZ$373 million from those interventions.

Difficult times

Outgoing Governor Alan Bollard said a slow economic recovery in the US, and particularly the simmering Eurozone crisis had cast a shadow over world growth following the global financial crisis. In New Zealand, recovery has been slower than would have been liked, with trading partners affected by Europe and bank funding enduring fragile periods.

New Zealand was coming to terms with a very different world economy, one with lower price pressures, very low or even negative interest rates, and slow growth and recurrent crises, Bollard said.

New Zealand businesses needed to find ways of operating within such an ongoing environment, while the Reserve Bank needed to ensure its monetary and financial policies were robust in such a world.

The other important area of uncertainty for New Zealand was the Canterbury earthquake rebuild.

"This will eventually provide a significant boost to nationwide activity for an extended period. However, the region has faced a number of significant challenges that have resulted in delays, including complex insurance issues," Bollard said.

"Nevertheless, we expect increases in activity in the region over the coming years: repair work has been gradually increasing over recent months, and the development of plans for reconstruction of the central city will assist with investment decisions," he said.

"These uncertainties apart, we see more positive signs ahead. Commodity prices have softened but remain reasonably strong. Our important markets in Asia have so far remained reasonably robust. We have just ended an excellent farm season. Banks have sufficient capital, funding and willingness to finance more economic activity. Interest rates are at historic lows."

The Bank's annual report noted construction activity elsewhere in the economy also remains subdued.

New Zealand households and firms continue to pay down debt, resulting in restrained expenditure on major household purchases and capital investment, it said in the report.

"Domestic GDP growth has consequently been sluggish: 2.4 percent in the year to March 2012. The recovery from the 2008–09 recession has been markedly slower than previous recoveries," the Reserve Bank said.

"While this performance may be disappointing in an absolute sense, it remains markedly better than most other OECD countries. There are signs of a recovery in housing market activity, with house sales, prices and residential consents increasing," it said.

"Climatic conditions in early 2012 were favourable for agriculture, boosting milk production and improving stock condition. Business confidence also points to continued, albeit modest, expansion. The high New Zealand dollar in part reflects this relatively favourable economic performance as international investors seek refuge from renewed recession in Europe.

"Given the current outlook for inflation, the Bank believes the level of support provided by the OCR at 2.50 percent remains appropriate and has not changed the OCR over the course of the year," the Reserve Bank said.

Not time for new tools to be used

Meanwhile, the annual report noted the Bank had outlined four macro-prudential tools for use supplementary with the Official Cash Rate that it could consider using if future credit conditions were to warrant it.

"With credit conditions in New Zealand subdued, there has been no immediate need to deploy such tools. However, the Bank continues to research the efficacy of potential macroprudential instruments," the Reserve Bank said.

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Code for: "We are poised to hammer down the NZ Economy at the faintest sign of a domestic recovery with a good old-fashioned OCR Hike"


How can it pay a dividend of 160million when it made a profit of 114million?




"With credit conditions in New Zealand subdued, there has been no immediate need to deploy such tools. However, the Bank continues to research the efficacy of potential macroprudential instruments," the Reserve Bank said.

Promises, promises!



The result 80% of the NZworkforce forgotten by Steven Joyce economic policy.


Today’s news: Kiwirail cuts 158 jobs - Solid Energy 230 jobs.


…and more to come leading into mass redundancy in 2013.


Number of listings on TradeMe Jobs just clicked over 12,000.  First time I've seen it so high. Depressing news for the pathologically gloomsterish who inhabit


Do you have a breakup/growth by region? I can bet, the growth in jobs is in Chch. Well in auckland the manufacturing sector is having a hard time, while house prices are rising..


"willingness to finance"......what a sad with money created out of thin air and backed by a stupid govt and brain dead RB.

What happened to the thrifty Kiwi..the ones who saved and paid in cash when they could afford what they needed.

Gone with the wind as they say...never to be seen or heard of again...over to the culture of debt and envy...more profits to those given the right to imagine money out of thin air..they control govt and the RB 100%

This situation is now the new normal all wrapped up in the endless world recession and money printing games. At the first sign of any decline in 'business activity' it will be a cut in the ocr..cheaper debt to be sold to chase property once again...

This is the 'game' Spencer spoke of...."play the game" he told the banks...more like play NZ for fools.


It is just simply "talking up...." - that's all.

Let's psychology take its course: houses - up, GDP -  up, next election - win.

All ticks are OK.....

Remember - Hawai home is waiting.....


We are 4 yrs since the GFC....  the internet gives us access to some of the greatest thinkers on the planet...   There are plenty of interesting and valid alternate views.

Our Reserve bank is completely stuck in its own "paradigm/matrix"..

Sounds arrogant .... but I just see it as plain common sense.

We are repeating things....  We are/might be.. in the early stages of another credit growth cycle...

If the global economy picks up just a little bit.... we will Rock..!!!!! ( credit growth )

BUT it is all fools gold....

We will get nominal growth of 2-3 % ,but it will be because we have credit growth of 5-8%.

Really we are only one business cycle behind the likes of Europe and USA..

The next downturn ...we will see a debt burdened Govt. and our own liquidity trap of 0% interest rates.

Meanwhile ... lets make hay while the sun shines.. ye ha...  (Thou... mkt swings could be volatile)

The Reserve Bank likes to think it is World leading and innovative.... but really... if they are.. it is only within the limits of their own "Matrix/world view".... which in my view, does not really represent the real world.

The sad thing is that there is so much information out there.... and you don't need to travel far..  (eg Steve Keen in Austrailia... I wonder if he met with "officials" when he was over here... and he is just one of many )

The Govt has been running deficits for over 4 yrs now... but to what end..????

The world might be trying to "deleverage"...  but we don't seem to be..... we are still playing by the old rules..... in my view..... Even Bill English is no longer using words like"rebalancing".





companies closing,workers being laid off finally we are catching up to the rest of the world 4 years later

methinks from here on in we may even see house prices plummet to levels that bernard has been talking about.

anybody with a bit of cash and a good job should be able to cash in big time


I tend to agree... best part of a thousand jobs lost. That's probably five hundred mortgages on the line. TO say nothing of the follow on effect, the engineers who support the closing mines etc.


Fisher and Paykel soon to move to China. I foresee some cheaper housing coming in the East Tamaki/Dannemora area as their workforce is slashed and burned.