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

 

Strike: Lyttelton Port Workers Vote To Escalate Dispute

Members of the Rail and Maritime Transport Union (RMTU) at Lyttelton Port today voted to escalate their industrial action. Around 200 RMTU members have been operating an overtime ban since 17 December and today they endorsed a series of full withdrawals of labour at the port. More>>

ALSO:

Scoop Business: NZ Dollar Falls To 3-Year Low As Investors Favour Greenback

The New Zealand dollar fell to its lowest in more than three years as investors sold euro and bought US dollars, weakening other currencies against the greenback. More>>

ALSO:

Scoop Business: NZ Govt Operating Deficit Smaller Than Expected

The New Zealand’s government’s operating deficit was smaller than expected in the first five months of the financial year as a clampdown on expenditure managed to offset a shortfall in the tax-take from last month’s forecast. More>>

ALSO:

0.8 Percent Annually:
NZ Inflation Falls Below RBNZ's Target

New Zealand's annual pace of inflation slowed to below the Reserve Bank's target band in the final three months of the year, giving governor Graeme Wheeler more room to keep the benchmark interest rate lower for longer.More>>

ALSO:

NASA, NOAA: Find 2014 Warmest Year In Modern Record

Since 1880, Earth’s average surface temperature has warmed by about 1.4 degrees Fahrenheit (0.8 degrees Celsius), a trend that is largely driven by the increase in carbon dioxide and other human emissions into the planet’s atmosphere. The majority of that warming has occurred in the past three decades. More>>

ALSO:

Scoop Business: New Zealand’s Reserve Bank Named Central Bank Of The Year

The Reserve Bank of New Zealand’s efforts to stifle house price inflation by using new policy tools has seen the institution named Central Bank of the year by Central Banking Publications, a publisher specialising in global central banking practice. More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

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