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

 

Balance Of Trade: NZ Posts Trade Deficit In October On Falling Dairy Exports

New Zealand’s posted its largest monthly trade deficit for October in six years, while narrowing the shortfall from September, led by a fall in dairy exports to China while all main imports into the country rose. More>>

ALSO:

Gigatown Winner: Plenty Of Positives For Dunedin

Although the city has taken the Gigatown title, along with new ultrafast 1Gbps broadband and funding for $700,000 worth of UFB-related initiatives across the community, Mr Cull says Dunedin has gained so much more through its involvement. More>>

ALSO:

R18: The Warehouse Group Praised For Removing Games

The decision by New Zealand’s largest retailer The Warehouse Group (TW Group), to withdraw stocks of the latest version of Grand Theft Auto V (GTA V) and other R18 games, has been praised by advocacy group Stop Demand Foundation. More>>

ALSO:

Air NZ Wine Awards: Victory For Villa Maria As Pinot Noir Thrills

It was a night to remember as Villa Maria Estate picked up one of the highest accolades of the evening, the O-I New Zealand Reserve Wine of the Show Trophy, at the 28th Air New Zealand Wine Awards. The Villa Maria Single Vineyard Southern Clays Marlborough ... More>>

ALSO:

Future Brighter Money: RBNZ Releases New Bank Note Designs

New Zealand’s banknotes are getting brighter and better, with the Reserve Bank today unveiling more vibrant and secure banknote designs which will progressively enter circulation later next year. More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news