Reserve Bank universally expected to keep the Official Cash Rate unchanged at next week's review but will point to the uncertainties around coronavirus and how that might affect the New Zealand economy

Reserve Bank universally expected to keep the Official Cash Rate unchanged at next week's review but will point to the uncertainties around coronavirus and how that might affect the New Zealand economy

The stronger than expected labour market figures for the fourth quarter released on Wednesday have made it a done deal that the Reserve Bank will leave the Official Cash Rate unchanged at next week's review.

Indeed, so relatively robust is the appearance of the New Zealand economy that in a normal environment some thoughts might now be turning potentially to the next OCR movement even being up. However...there's a very big however.

As BNZ's head of research Stephen Toplis put it in his review of the labour market data: "The labour data provide the RBNZ with no excuse to even contemplate lowering interest rates. To the contrary, in and of itself, these figures suggest the RBNZ should be seriously considering raising rates."

But then he goes on: "Of course, the data are historical. And the big question on everyone’s lips is what will the coronavirus do to growth, employment and inflation? Given the extent of this risk, and the uncertainties that surround it, any talk of tighter policy is premature. But, be this as it may, the starting point remains important and there is clear indication in [Wednesday's labour market] figures that the economy does have the ability to absorb some of the current shock without its overall stance becoming unhealthy."

So, yes, the coronavirus outbreak is reminding us once again, if we needed it, that New Zealand's economy is a tiny rowboat in a vast churning sea. The extent to which the impact of the virus and the measures to control it damage the New Zealand economy is the big multi-billion dollar question, but the RBNZ will for sure be watching developments through a magnifying glass and be ready to jump in in future months with another interest rate cut. 

In a preview of next Wednesday's (February 12) OCR review, ANZ chief economist Sharon Zollner says she expects the RBNZ will indicate that they expect to sit on the side-lines for the time being, but that they are watching emerging global risks closely.

"They will acknowledge the human impact of the tragic new coronavirus, with cautious language about possible risks to the economic outlook. Domestic conditions give the RBNZ scope to wait and see how developments unfold.

"We expect the OCR track will be broadly unchanged, despite a stronger domestic backdrop. The economic impacts associated with the outbreak are highly uncertain and are likely to sit largely in the ‘risks’ basket for now. But a short-term negative impact on GDP growth, commodity prices and global wholesale interest rates may feature in the central forecast. Exactly how they incorporate it won’t matter too much – any forecast will be out of date in a week."

Westpac's chief economist Dominick Stephens and Westpac industry economist Paul Clark say they expect the impact of the coronavirus outbreak could knock 0.6 percentage points off New Zealand's March quarter GDP. They are now therefore predicting just 0.1% GDP growth for that quarter. They do, however, currently expect that tourism and other export activity will start recovering through the middle of 2020 and that as the level of GDP returns to normal levels, quarterly growth rates will be higher than normal.

"Consequently, we are now forecasting quite rapid rates of GDP growth in the late part of 2020," they say. Assuming that's what occurs they say there would be little lasting damage to the NZ economy. 

The swirling global backdrop and threat to our economy come at a time in which New Zealand's domestic interest rates have been trending up. 

In the wake of the labour market figures the wholesale swap rates rallied strongly on Wednesday, with two-year swap rates rising by 7 basis points to 1.12%

According to calculations, the average rate on fixed mortgage rates has been rising. For example the two-year fixed rate after hitting a low of 3.46% in November has now climbed back up to 3.55%. And this will likely increase as other banks move to match the ANZ's increase this week.  

The move to gradually higher interest rates has come as the housing market has sprung back to life again

ANZ's Zollner points out that house price inflation has been stronger than expected.

"We expect house price inflation will peak at 8% y/y versus an RBNZ forecast peak of 5.7%. This will support both consumption and residential investment."

She says domestic developments in the New Zealand economy would point to an upgrade to the RBNZ’s growth forecasts. But this is likely to be tempered somewhat by a near-term dent in exports from the coronavirus impact and a more conservative outlook for commodity prices.

"It is far too soon to gauge the impact, however, and it is unknown how much the RBNZ will build into their central forecasts. We expect that the OCR track will be broadly unchanged, but that the RBNZ will signal a willingness to provide more stimulus if required."

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Interesting silence in the comments section here. Would it be because the prospect of increasing interest rates in
NZ would create more panic than the Coronavirus ?

Just a lot of balls in the air and no one knows where they will land. Figures coming out daily
that can change the outlook in a minute. It's a wait and see, with no clear path at present.

Really? I think things are very clear and obvious, more so than ever before


Would it be because the prospect of increasing interest rates in NZ would create more panic than the Coronavirus ?

Probably. Most NZers don't really understand the scale and economic impacts of Coronavirus yet. Some who're commercially based in HK, Shanghai, Tokyo, etc should be aware that this is unprecedented.

Did China's Tencent Accidentally Leak The True Terrifying Coronavirus Statistics

It could be that China is reporting the "official" death rate in the same way it reports its "official" GDP rate.


like you say,they will be watching the numbers as they are re-active not pro-active,not hard to predict that the layoffs in forestry will only be the beginning,freezing works,hotels and restaurants,car rentals,tour bus operators and the service stations that fill up their 500 litre tanks.

There are many reports of supply chain disruption, which leads to more disruption as some inputs are missing then other inputs aren't needed. With all the obvious flow on effects. There's a lot of uncertainty and we're just going to have to deal with the outcomes.

It's going to suck if a lot of people find they have no work, even if that only lasts a few months.

It's going to suck if a lot of people find they have no work, even if that only lasts a few months.

Many NZ h'holds will be living paycheck to paycheck, even in the higher socio-economic classes. There is little breathing space.

Has the potential to cause a banking problem, due to the amount of lending banks have made to people , to buy overpriced houses.If these people can't afford to pay their mortgages due to been laid off.These types of events have the potential to cause financial disasters. We saw lots of knock effects after 9/11, which restricted air travel. I recall Air NZ having to be bailed out around that time.

It would help to prepare for, and deal with, the coronavirus here and elsewhere if people stopped peddling the CCP's figures.

As Ambrose Evans-Pritichard writes in today's Telegraph: The 2019-nCoV variant is more akin to the Spanish Flu pandemic of 1918. It appears to be tracking the 1918 death rate at around 2.3pc (20 times normal winter flu) to the extent that we can believe any figures. |There is some evidence that it is nearer 4.9pc in Wuhan.'

'The coronavirus numbers are patently fiction. Far more have died than the official tally of 493. A Lancet study last week by the University of Hong Kong estimated that the Chinese authorities have understated the epidemic tenfold. This was based on a spread rate of 2.68 per case and a doubling in total numbers every 6.4 days, matched with known travel movements within China and globally since the outbreak. It calculated even then that the true figure for Wuhan was likely to be 76,000, and that Chongqing, Changsha, Nanchang, are already riddled with the disease.'

The world of fact and fake news and deciphering what is fact and what is fiction.
I'm preparing for both outcomes because I haven't got a clue what is BS and what is not....
Ready to bug out and looking at buying a property at the same time. We'll have a much better idea of what's going on in two weeks to a month.

Bugging out to Eketahuna. That's hard core. I just purchased some bags of rice, N95 masks, changed kiwisaver to conservative, and got some ethanol.

Don't forget winter veg seeds and a good roll of clear plastic to build a green house.

While the western medias describe the coronavirus as an apocalypse, i think peope need
to remember the 2009 H1N1 outbreak killed over 10000 people in America alone, and it happened right after the GFC. So this coronavirus may not end China or the world this time. Xi has made China extremely unpopular on the international stage, so i'm not surprised the West takes this great opportunity to undermine China. however, based on the feedback I'm receiving from friends and families who live in different parts of China, I think the Chinese authority has the situation under control at the national level while still have plenty of spares in the toolbox. Don't underestimate the iron fist folks. It's still too early to tell what implication this outbreak has in the long run.

The problem is that the true situation hasn't been reported.

My friends and families live in both north and south part of China. Their lives are disrupted, but resources are plentiful and social orders remain in place. They are advised to stay at home and only go to shopping when absolutely necessary. So far, things are OK. I think the use of the military is the key indicator of the development of the situation, especially in Wuhan and the surrounding areas. According to the official media, the PLA only involves in logistics and medical support at this stage.

Thanks for the update.

Anybody still thinking the travel restrictions are going to be lifted anytime soon?

Coronavirus vaccine is at least 3-4 months away. The true infection rates may not be correct and with globalisation the spread is much faster than expected.
So there still a fair bit to play out yet! NZ Economy will certainly get a hit..

Our estimate CM? is at least 12mths away for save deployment vaccine, even tweaking the SARS, MERS (not fully proven/effective vaccine) into vaccine for this nCov19 is not that easy, the 3-4months bile of potential vaccine you've mentioned indeed could be possible just to 'halt' the quick number of death. But rushing it could be dangerous as well. Playing at this level, is not much differ than administering Chemo or Radio/Nuclear Med. - little mistakes, the result is just simply prolonged/unpleasant death. We have probability knowing where the genome creature/s of such virus coming from (genome resemble closely to wild snake/s), knew how the crown/spike/corona of this bug is mutated & attached to human reseptor protein to survive hence it's definite class of RNA viruses - problem now still to unanimously ID ed the human protein that commonly being attacked by it, thus create a vaccine/inhibitor to prevent such future attachment/infection. This very delicate molecular analysis, it is by far no safety mechanism to date, it's usual FLU.. with steroid if you may say. Best treatment: (1)immediate detection then put patient into ICU, put into low tide ventilator pressure/breathing machine (2)paralysed patient so combination of drugs, may slow down the spread (3)positioning - let the body heal itself. Sadly all those 3, requires intensive medic intervention - almost impossible for the current numbers, hence the death counts up specially the young, the old & the in between but pre dispose with hightly critical medical conditions such as; heart, lungs anomaly etc. - Economy? yea, we are being put heavily reliance on China.. well tell that to JK, Simon, Jacinda & the rest of Nat Coorp.

I'd say OCR is more likely to go up. Orr does the unexpected. That's the strategy. Wow, he really got them with that double cut. And then next time too when he left it. Few saw it.

A rise would be a self-fulfilling prophesy for improved confidence.

You dreaming, he might put it up. But there is only one way they go and that is down.

I can';t see how it is sustainable long term to have them so low. People will just put their money into houses. It creates a growing divide between the haves and have nots. No incentive to save money, and save for retirement

Corona virus will become economic virus. And the vaccine comes with painful injection.

And a kick in the nuts.

Hopefully this is a wake up event only that causes Xi and his cronies to sort out Chinese health standards once and for all else it is only a taster for the big black swan (bat) event that is surely coming....

Try and buy hand sanitizer these days. Now.
Find it by the empty supermarket shelf.
Local Supermarkets are struggling to keep up/not keeping stocks up.

And face masks. It is funny how people are led by 'fear', so they look after themselves, and others miss out.

Heard a rumor that face masks coming in from overseas for private people are being taken by the Gov't.

Search DIY hand sanitizer on YouTube.


NZ has put too much reliance on China, read today somewhere around 700billions wipe out from China's share market? - but, hey.. we can put any numbers these days, double, triple, quadruple it. Won't make any different, it's all just phantom numbers - amazing world of economic numbers eh?

Folks, check out any NZ shipment produce to China, logs, sea foods etc. - all being halted at the moment by the authority in China.. no big ships export/import to allow in/out - only the necessity ships for now. This little nCov19 spread like the usual Flu, sadly it's very quick in mutation and caused Acute respiratory trauma. China needs not a lot of just mask, but huge amount of LTVV - most unattended/died patients was due to inability for breathing, they're drowned slowly but surely by their own liquid lungs (by product of body fights against the blood vessel inflammation in lungs, caused by the bugs).

Actually it is not quick in mutation, gene sequencing show all cases internationally VERY similar with minor substitutions in sequence means prob from single source and very recent - early November, the chemicals mutate at a known rate rate per cell cycle

Correct in the way, I was using a wrong wording there. This is an RNA virus, the corona of it around 30%, tend to mutate/adaptable in order for it to survive. Around 60% of it's gene used for multiplier/replication, those above 30% (this is just estimate number) tend to be the gene that subject to 'typo' aka mutation into attachment to human protein receptor. Probability is all of it carry the same backbone particle structure, But this 30% is the main differentiator, we can call it the mutated/adaptable part, yet as it is the S Gene/attach/attacking gene. It the most to study/watch. Probably will bore readers here, if we need to disclose the Phylogenetic analysis result of comparisons between the current 2019-nCov to other Betacoronavirus genomes within the Orthocoronavirinae subfamily.

Time to dust off the metaphor about hammers and nails.

Why in god's name would an interest rate cut be a good method of fixing a pandemic?

40,000 die a day of old age and general mortality and china isolates 60mil over a outbreak.... they are very worried its closer to SARS then flu, current numbers show 13% serious cases requiring intensive care... but the beds are all full. Lets hope this is not a chimeric virus.

How do you coerce healthy people to go back to work in china...?

You lie about the numbers.

CCP cannot contain any longer, they said the number is stabilising.. this incoming Monday? all peoples are itchy to get back to work. Here' the worry part for all of us.
Like any others, this can be a latent, with high probability to hit again quickly, from people movement, the epicenter... could shift to different region/nations etc. Like cancer, we are also scoping the possibility that this predominantly affecting certain race demographics.. for instance the Melanoma cancer, predominantly reported within caucasian/pale skins, this is just something we need to look at - difficult to disclose within public, as in Scientific way, all need to be proven, tested, collect more data, tabulated etc. - Public reactions tend to be that socio isolation/labeling.