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

 


RBNZ set to raise benchmark interest rate

Falling dairy prices, high kiwi and milder inflation may temper RBNZ’s OCR track

April 22 (BusinessDesk) – The Reserve Bank of New Zealand is set to raise its benchmark interest rate for the second time in as many months although the ground has shifted slightly since it began tightening in March, with dairy prices tumbling and inflation printing weaker than forecast.

The central bank will lift the official cash rate a quarter point to 3 percent on Thursday, a level it last saw in January 2011, according to all 15 economists in a Reuters survey. Based on governor Graeme Wheeler’s projections in the March monetary policy statement he will increase the OCR by a total 2 percentage points in the next two years.

At last month’s MPS, Wheeler noted that growth was absorbing spare capacity in the economy, and “inflationary pressures are becoming apparent, especially in the non-tradables sector.” Figures for the first quarter confirmed that trend, with non-tradable inflation of 1.1 percent, up from 0.5 percent three months earlier.

Yet tradables inflation – goods and services that are imported or in competition with foreign goods – weakened to -0.7 percent from -0.5 percent in the face of a persistently high dollar, leaving overall inflation in the quarter at 0.3 percent – below the central bank’s 0.5 percent forecast. Meanwhile, dairy product prices have extended their slide by a further 16 percent since the March MPS, based on the GDT price index, which may be a sharper drop than the bank had anticipated, raising a question over a follow-up to this week’s expected hike at the June 12 MPS.

“In our view, concern over the speed and magnitude of dairy price falls and discomfort with the strong NZD’s decoupling from commodity prices would indicate the RBNZ is far from committed to lifting the OCR in June,” ASB chief economist Nick Tuffley said in his OCR preview.

While it may be too soon for the central bank to weigh the medium-term implications of a stronger currency and falling dairy prices, given they are “notoriously volatile,” they “do reinforce to us, however, that the OCR is likely to peak around 4.5 percent, on the low side of the 5-5.25 percent implied by the RBNZ’s March MPS forecasts.”

Based on the New Zealand dollar overnight index swap rate, there is an 89.8 percent probability the OCR will be hiked to 3 percent this week, according to Reuters data. The implied rate at June 12 is about 3.13 percent, rising to 3.27 percent as at the July 24 review and suggesting traders don’t see a third increase in June.

This week’s interest rate review “will strike a more cautious tone than previously, mainly due to the high exchange rate and soft inflation data,” Imre Speizer, director of NZ rates strategy at Westpac Banking Corp said in his RBNZ scenario analysis. “We see no chance of a hawkish outcome, since the only positive development of relevance is stronger migration but that is a modest offset.”

Government figures last month showed New Zealand’s inbound net migration rose to a 10-year high 3,500, seasonally adjusted, in February, the most since April 2003. Inbound migrants tend to stoke demand and prices for everything from houses to the appliances and furniture to fill them.

The trade-weighted index was recently at 79.63, holding above the average 78.4 level the central bank has assumed for the first half of 2014.

This week’s review will be delivered as just a one-page statement from the Reserve Bank, so it won’t telegraph specific changes to the long-term trend in interest rates as the MPS does.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Fonterra: Canpac Site 'Resize' To Focus More On Paediatrics

Fonterra is looking at realigning its packing operations at Canpac, in the Waikato, to focus more on paediatric nutritionals... The proposed changes could mean around 110 roles may not be required at the site which currently employs 330. More>>

ALSO:

Scoop Business: Postie Plus Brand Gets 2nd Chance With Well-Funded Pepkor

The Postie Plus brand is getting a new lease of life after South Africa’s Pepkor bought the failed retailer’s assets out of administration and said it will use its purchasing power to reduce costs of stock and fatten margins. More>>

ALSO:

Warming: Warming Signs From State Of Climate Report

Climate data from air, land, sea and ice in 2013 'reflect trends of a warming planet' -- says the latest State of the Climate report, launched by U.S. and New Zealand scientists. More>>

ALSO:

Scoop Business: Embrace Falling Home Affordability, Says NZIER

Despair over the inability to afford a house is misplaced and should be embraced as an opportunity to invest in more wealth-creating activity, says the principal economist at the New Zealand Institute of Economic Research, Shamubeel Eaqub. More>>

Productivity Commission: NZ Regulation Not Keeping Pace

New Zealand regulators often have to work with out-of-date legislation, quality checks are under strain, and regulatory workers need better training and development. More>>

ALSO:

Callaghan Innovation: Investment To Help Deepen Innovation Reporting

Callaghan Innovation, the government’s high tech HQ for Kiwi business, is to help deepen New Zealand media coverage of the commercialisation of innovation through an arms-length partnership with independent business news service BusinessDesk. More>>

ALSO:

Tax Credits, Grants: Greens $1Bn R&D Plan

In the Party’s headline economic announcement, the Greens have launched their plan to build a smarter, more innovative economy which has as its centrepiece an additional $1 billion of government investment in research and development (R&D) above current spend, including tax breaks for business. More>>

ALSO:

Inflation: CPI Increases 0.3 Percent In June Quarter

The consumers price index (CPI) rose 0.3 percent in the June 2014 quarter, Statistics New Zealand said today. This follows rises of 0.3 percent the March quarter and 0.1 percent in the December 2013 quarter. More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus

Standards New Zealand

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