Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


RBNZ expected to cut OCR by 25bps on 3 October

Data Flash (New Zealand)
NZ: RBNZ expected to cut OCR by 25bps on 3 October


As we release this research, the full impact of the tragic events that took place in New York City on 11 September remain unclear. Needless to say, our thoughts are above all with everyone affected by these events. It is also unclear at this juncture how the operations of the major financial exchanges and markets will be affected, and how long any interruptions will be for those markets whose operations may be suspended.

Notwithstanding these terrible events, however, we believe our responsibility as researchers remains to provide the best advice we can to you, our customers, so that you can continue to manage the financial risks you face.

We now expect the RBNZ to cut interest rates by 25bps on 3 October. Furthermore, we expect the Bank to signal that further rate cuts cannot be ruled out if the global situation requires it.

We think that such a move is now prudent, considering that the risk of a prolonged slowdown in US economic activity, with corresponding effects on the global economy, has increased significantly.

Even before the tragic events of this week, over recent weeks it has looked increasingly likely that the downturn in the US will be more drawn out than expected initially - a conclusion reinforced by the sharp drop in consumer confidence overnight (this survey was taken before this week's tragic events). While our central call had been that the RBNZ easing cycle was finished, over recent weeks we had raised the probability of a further rate cut on 14 November to around 40%.

Given the current high level of uncertainty, it is difficult to assess the medium-term effects on the US and world growth of this week's terrorist attacks. Much will depend on whether a degree of normality can be restored relatively quickly, whether threat of further terrorist action will dampen business and household spending directly, and how the US financial markets respond over the coming weeks.

However, there is a substantial the risk that US consumer confidence, already dented by a weakening labour market, will deteriorate further, with a corresponding slowdown in consumer spending. So far the New Zealand economy has shown great resilience in the light of global economic weakness. As discussed in a separate note, we estimate that the economy grew 1.6% qoq in Q2. A further gain of 0.7% qoq appears on the cards for Q3. That suggests underlying trend growth of around 3% per annum. However, without a re-strengthening of the global economy, New Zealand's momentum is likely to slow markedly early next year as a result of weaker export volumes and a decline in export commodity prices. It is that potential scenario that we think the RBNZ needs to insure against through one or more additional rate cuts.

We assume that the Bank, even before this week's events, had come to the conclusion that there was a good chance that a further easing would be required in November. With the significant increase in downside risks this week, it is seems sensible to us to bring this rate cut forward. This would allow a further rate cut to be implemented at the scheduled 14 November Monetary Policy Statement, should subsequent developments suggest that this is warranted. Any RBNZ action would very likely be preceded by an inter-meeting interest cut by the Fed, with other central banks expected to re-assess their options after the Fed action.

We expect the RBNZ to present a 3 October rate cut as an insurance move. Should it turn out that the adverse effects on global growth are less than feared, while the momentum of the New Zealand economy continues to hold up better than expected, the RBNZ is unlikely to hesitate in reversing its action(s) quite quickly. This means that a scenario that contains further rate cuts and a renewed rate hike in H1/2002 cannot be ruled out. Given current exceptional circumstances, in our view the Bank would be unlikely to attract criticism for such a policy reversal.

Ends


© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

I Sing The Highway Electric: Charge Net NZ To Connect New Zealand

BMW is turning Middle Earth electric after today announcing a substantial contribution to the charging network Charge Net NZ. This landmark partnership will enable Kiwis to drive their electric vehicles (EVs) right across New Zealand through the installation of a fast charging highway stretching from Kaitaia to Invercargill. More>>

ALSO:

Watch This Space: Mahia Rocket Lab Launch Site Officially Opened

Economic Development Minster Steven Joyce today opened New Zealand’s first orbital launch site, Rocket Lab Launch Complex 1, on the Mahia Peninsula on the North Island’s east coast. More>>

Earlier:

Marketing Rocks!
Ig Nobel Award Winners Assess The Personality Of Rocks

A Massey University marketing lecturer has received the 2016 Ig Nobel Prize for economics for a research project that asked university students to describe the “brand personalities” of three rocks. More>>

ALSO:

Nurofen Promotion: Reckitt Benckiser To Plead Guilty To Misleading Ads

Reckitt Benckiser (New Zealand) intends to plead guilty to charges of misleading consumers over the way it promoted a range of Nurofen products, the Commerce Commission says. More>>

ALSO:

Half A Billion Accounts, Including Xtra: Yahoo Confirms Huge Data Breach

The account information may have included names, email addresses, telephone numbers, dates of birth, hashed passwords (the vast majority with bcrypt) and, in some cases, encrypted or unencrypted security questions and answers. More>>

ALSO:

Rural Branches: Westpac To Close 19 Branches, ANZ Looks At 7

Westpac confirms it will close nineteen branches across the country; ANZ closes its Ngaruawahia branch and is consulting on plans to close six more branches; The bank workers union says many of its members are nervous about their futures and asking ... More>>

Interest Rates: RBNZ's Wheeler Keeps OCR At 2%

Reserve Bank governor Graeme Wheeler kept the official cash rate at 2 percent and said more easing will be needed to get inflation back within the target band. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news