PM doesn't see OCR cut on August 11 more likely after Brexit vote; says RBNZ still forecasting 3%-plus growth; Wheeler still has buffer, but Brexit no reason to cut by itself, he says; New FTA needed with UK post Brexit

PM doesn't see OCR cut on August 11 more likely after Brexit vote; says RBNZ still forecasting 3%-plus growth; Wheeler still has buffer, but Brexit no reason to cut by itself, he says; New FTA needed with UK post Brexit

By Bernard Hickey

Prime Minister John Key has downplayed market expectations that Friday's Brexit vote makes it more likely the Reserve Bank will cut the Official Cash Rate again on August 11.

Economists and financial markets increased their expectations the OCR will be cut again from 2.25% after Britain voted 51.9% to leave the European Union, with most seeing a cut as near certain. Financial markets are also pricing in higher chances of further cuts to 1.75% or beyond.

"I don't think so in the short term, primarily because what he's looking at is the strength of the economy," Key told Guyon Espiner on RNZ when asked if Brexit made an OCR cut by Governor Wheeler more likely in the short term.

"And if you look at his last Monetary Policy Statement he effectively had growth at a slightly stronger rate than the Treasury, he's north of 3%. I think he will look at the world markets. One could argue he's got room to move if he needed to," he said.

"That's probably a buffer that's useful from Graeme Wheeler's perspective, but I don't think of itself it will make him cut."

Some bank economists have argued that financial turmoil would increase bank funding costs on international markets, which might either push up mortgage rates in the absence of more OCR cuts, or stop them falling if the OCR was cut.

"The uncertainty will also result in higher bank funding costs for New Zealand. This means that although NZ two-year swap rates are falling, mortgage rates and business lending rates are unlikely to fall as far (or may not fall at all)," Westpac Chief Economist Dominick Stephens said.

New trade deal needed

Key acknowledged, however, that New Zealand would have to forge a new trade deal with Britain, and continue on with its talks for a separate trade deal with the EU.

"At the moment we've got access for people and goods in the UK under the existing rules that have been negotiated. What we've got is an agreement from British and EU officials that those rules will remain until new rules are negotiated, so fundamentally we need a new agreement -- we need an FTA," he said.

Todd McClay said he expected to meet many of European Trade Minister counterparts at the G20 meeting in Shanghai on July 9-10 and he had already requested meetings with ministers and the EU Trade Commissioner.

“In the meantime, it is important for exporters to be assured that our economic relationship with the UK and Europe will remain the same for the foreseeable future," he said, adding the actual Brexit process could take anything from two to six years.

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24 Comments

He would say that wouldn't he?
He could hardly say there would likely be a cut coming and thereby usurp the authority of the RB.
Keep calm and carry on.

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There are some lessons in Brexit for the Government. The poorer disenfranchised provincial voters in NZ are likely to vote against high levels of immigration which are decreasing per head incomes and making access to government services difficult. Excessive competition for housing also appears to be resulting in people sleeping rough in winter in increasing numbers. As a result John Key would be very wise to think about how unpopular in the medium term National policies may prove and the long term damage to Nationals brand.

lol... to be honest I'd be happy if the only thing NZ government learned was that in a democracy, government is there to represent the people. All citizens initiated referendum have had much larger margins than UK's sub-4% margin, yet all have been ignored. They don't care how many policies are unpopular or hurt our citizens as long as they are ahead of the opposition and can stay that way. Would a real opposition please stand up...

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The ORACLE speaks and NZ media nod wisely.
What he really meant to say was"Don't worry NZ if it hits the fan we will just ramp up immigration even more"

JKEXIT

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If you want an idea of what "could happen" in NZ. Take a look at the conditions in the UK throughout the Austerity period and the similarities between the UK Political, Social, Economic & Wealth inequality in the main city's versus the impoverished provincial regions that have suffered by local manufacturing jobs moving offshore and being replace with low wage casual, no contract work which creates poverty. A high probability of a Housing Bubble .... and an ineffective government that has imploded or is about too. One vote, one person equals a change in direction. Just what NZ needs before we're too far gone.

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Several years ago I reached the stage of not believing one word John Key says. There is absolutely no reason for me to change my stance.

Governance has degenerated into an idiotic puppet show, geared to keeping the masses deluded and uninformed while a few sociopaths near the top of the pyramid orchestrate the raiding and polluting of the commons, and in doing so ruining everybody's future.

That's the whole idea, it serves them well.. with some collateral..

I think many home owners dont mind immigration. ie get better price when selling , fhb and renters have more of an issue with it,when the renters and poor outnumber the home owners and the amount of people that turned 18 since last election fiqure out how to vote, People may change the govt but that wont change much.If Labour in power houses prices wont half and immigration may decline or go up so cant see any big changes any time soon better with devil you know sometimes. Tax cuts maybe the big carrot as most people look at whats in it for me

At some stage the party is going to end, and many people will wake up with big hangovers. Why are we allowing people in when we don't have enough houses, all it is doing is artificially pushing up prices. Banks should get harder on lending for some of these overpriced places.

Mr Key also said the government would be "looking closer at our trade agreements to make sure they are all about trade, and would clean up our foreign trust policys". He went on to say that they would also "tighten up our immigration rules and stop non citizens from buying houses" to try to lift the average wage and ease our housing issues.

Yes but based on his other previous works that interprets as "we are going to look closer but at the end of the day we are going to do stuff all"

Sorry .. No he did not say that, i just wish he would.

Tighten immigration?!
The Givt cannot do this - they are committed to an economic policy leveraging increased ongoing immigration in NZ.
For example: All of NZ's Universities & Polytechs would be financially unfeasible quickly without their increasing international students/alternative immigrants.

People seem to be clamouring for lower interest rates but they are just as self-serving as the National government. JK to me is signalling that he doesn't want lower interest rates - perhaps a hint that he does realize that there is a housing crisis in New Zealand.

Wheeler too also has reiterated this, that he is incredibly resistant to going lower. It's just compounding the problems like we have seen overseas and they know it.

Well you may want to think again Mr Key on how you're going to make the NZD more competitive. We all know that so called 3% economy growth is largely due to the huge property price increases via overseas investors. So that isn't real growth, really is it. It's just an illusion of economic growth, which is a huge problem since it is not sustainable.

Oh and by the way, the British companies will be highly likely to be pulling out of NZ fairly soon since most business over there have already implemented hiring freezes. So a high NZD is not help going to help people keep their jobs (Particularly risky in the global IT sector).

If we're to keep the ever popular housing market afloat we need to maintain jobs, otherwise who is gong to be able to pay for those exorbitant rents?

Cj009- how correct. Brexit is sign of things to come and no illusion and lie can save national party as even they are not able to feel the pulse of the nation in their arrogance.

They do not even realise that they are totaly exposed and in isolation.

Brexit vote should be a warning to arrogent minister/govt that world over people are fed up with denial and lie and Kiwis too expect the government to come out of denial and work for the welfare of the country and not......

Prosperty for all new zealanders and not of non residents/overseas. And elite few.

UK has 600,000 migrants per year with a population of 64,000,000 = 0.938% increase
NZ has 68,000 migrants per year with a population of 4,400,000 = 1.55% increase

Key made the 600,000 figure seem extreme in that interview but he is adding a greater percentage per year to our own population.

Gee big blue, is the UK 10 times NZs land size - cherry picking stats is fun isn't it?

So what are you saying Grant A - should we increase our population by a factor of 10?

Big Blue,

Just for the record, the figure for the UK was around 330,000 for 2015.

bigblue might not have his stats correct but his sentiment is in tune with the majority of NZ'ers who like our low population.
We've sold our power stations, it seems the last thing our govmnt has to sell is our low population.

EU Masters to Nigel Farage...Article 51: DON'T LET THE DOOR HIT YOUR ASS ON THE WAY OUT!