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

 


RBNZ Observer: Another 25bp hike expected next week

RBNZ Observer: Another 25bp hike expected next week

New Zealand’s economy remains on track to post one of the strongest growth rates in the OECD in 2014
With demand continuing to pick up strongly, we expect the RBNZ to raise rates further next week
The recent fall in dairy prices and the high NZD may see the RBNZ hike by less than current market pricing implies over the next year

New Zealand’s boom continues
The RBNZ became the first developed world central bank to hike rates this cycle, in March, raising its cash rate by 25bp to 2.75%. We expect the RBNZ to follow through with a further 25bp rate hike next week, as New Zealand’s economy remains on track to post one of the strongest growth rates in the OECD in 2014.

A number of factors are supporting growth. Post-earthquake reconstruction continues to ramp up. Export commodity prices have risen strongly. New Zealand’s housing market is also continuing to strengthen, with prices rising further in January and February, after moderating in previous months. With inward migration at 10-year highs, the housing market is likely to strengthen more. Strength in house prices is also supporting household spending, with construction activity rising outside of post-earthquake rebuild-driven construction in Canterbury. Further to this, a combination of rising asset prices and an improving labour market has helped support a rise in consumer spending and confidence.

As a result, business confidence remains close to 20-year highs and business surveys present some upside risk to the RBNZ’s growth forecasts. At the same time, domestic cost pressures are continuing to pick up. As a result, the RBNZ is likely to continue to raise interest rates to manage the boom in demand and keep inflation in check.

However, a couple of factors could limit the extent of further rate hikes this year. The first is the recent fall in dairy prices. Dairy prices have fallen 25% since their April 2013 peak – with this fall likely a little quicker than the RBNZ was expecting. In addition, the NZD has continued to strengthen, sitting 2.5% above the RBNZ’s expectations so far in Q2. This should help contain cost pressures created by the boom in demand.

Overall, we see a hike of 25bps to 3.00% next week as highly likely. But we expect the cash rate to end this year at 3.50%, compared to the RBNZ’s implied projection of 3.75% as a high NZD may do more of the work than the RBNZ is currently assuming.

Click here for the full report.

ENDS

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Gordon Campbell: On Tiwai Point (And Saying “No” In Greece)

Its hard to see how Rio Tinto’s one month delay in announcing its intentions about the Tiwai Point aluminium smelter is a good sign for (a) the jobs of the workers affected or (b) for the New Zealand taxpayer. More>>

ALSO:


Half Empty: Dairy Product Prices Extend Slide To Six-Year Low

Dairy product prices continued their slide, paced by whole milk power, in the latest GlobalDairyTrade auction, weakening to the lowest level in six years. More>>

ALSO:

Copper Broadband: Regulator Set To Keep Chorus Pricing Largely Unchanged

The Commerce Commission looks likely to settle on a price close to its original decision on what telecommunications network operator Chorus can charge its customers, though it probably won’t backdate any update. More>>

ALSO:

Lower Levy For Safer Cars: ACC Backtracks On Safety Assessments

Dog and Lemon: “The ACC has based the entire levy system on a set of badly flawed data from Monash University. This Monash data is riddled with errors and false assumptions; that’s the real reason for the multiple mistakes in setting ACC levies.” More>>

ALSO:

Fast Track: TPP Negotiations Set To Accelerate, Groser Says

Negotiations for the Trans-Pacific Partnership will accelerate in July, with New Zealand officials working to stitch up a deal by the month's end, according to Trade Minister Tim Groser. More>>

ALSO:

Floods: Initial Assessment Of Economic Impact

Authorities around the region have compiled an initial impact assessment for the Ministry of Civil Defence, putting the estimated cost of flood recovery at around $120 million... this early estimate includes social, built, and economic costs to business, but doesn’t include costs to the rural sector. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news