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

 


RBNZ may affirm pace of rate hikes to market expecting less

Reserve Bank may affirm pace of rate hikes to market expecting less

By Jonathan Underhill

June 6 (BusinessDesk) – The Reserve Bank may surprise some market participants by reiterating plans to lift the official cash rate by 200 basis points over two years in next week's policy statement, in the face of surging migration, a weaker kiwi, stimulatory fiscal spending and a growing economy.

Governor Graeme Wheeler will lift the OCR by a quarter point to 3.25 percent next Thursday, according to 16 of 17 economists in a Reuters survey. The rate reaches 3.5 percent by year end, based on the median expectation.

Since the central bank's March monetary policy statement, figures have shown inflation accelerated a lower-than-expected 0.3 percent in the first quarter, while there are signs heat in the housing market is dissipating, at least partly in response to curbs on low-equity loans. That's helped stoke expectations that the tightening cycle will be less severe than suggested in the last MPS.

Yet annual net migration is expected to peak at close to 40,000 this year, more than three times the long-term average, while last month's budget added $500 million a year to government spending and the trade-weighted index this week fell to a three-month low of 78.58, reducing the impact of a high kiwi in mitigating imported inflation.

"Compared to the March MPS, the RBNZ might sound a touch less worried about inflation and the forecast of 90-day interest rates might be downgraded by 10 or 20 basis points," Westpac Banking Corp chief economist Dominick Stephens said in a MPS preview. "But this will be detail around the edges – the main point of the document will be to communicate that further hikes are coming."

By contrast, financial markets are expecting a softer tone, and one of the central bank's key aims next week could be "to bring errant financial market pricing back into line with its own thinking," Stephens said.

That's a view shared by Kymberly Martin, senior market strategist at Bank of New Zealand, who says swap rates have declined from their peaks of recent months and appear to be pricing in a weaker tightening cycle.

"We believe the market is now complacent on the outlook for the OCR, pricing in little more than 50 basis points of hikes by year-end and just 130 basis points over the next two years," she said. "At next week's meeting we believe the RBNZ will remain committed to raising the OCR by around 200 basis points over this period."

In April, when Wheeler hiked the OCR for a second straight month, up a quarter point to 3 percent, he also nudged up his estimate for gross domestic product in the year ended March 31 by half a point to 3.5 percent, saying the economic expansion "has considerable momentum." He also noted that rising net immigration was boosting "housing and consumer demand."

ASB chief economist Nick Tuffley is forecasting total net immigration will peak at 42,500 this year, equivalent to adding a city larger than Wanganui.

Still, he expects Wheeler to pause after next week's expected OCR hike until late 2014, partly because immigration is boosting the supply of labour, which should weigh on wages, and because Fonterra Cooperative Group has flagged a cut in its milk payout for next season.

The reduced milk payouts would all up take about $2.6 billion out of the domestic economy in the next 18 months, amounting to about 1.1 percent of gross domestic product, according to Con Williams, rural economist at ANZ Bank New Zealand.

Gross domestic product for the first quarter is scheduled for release on June 19. Given the Reserve Bank raised its expectation for first quarter GDP to 3.5 percent, there is scope for the bank to lift its second-quarter projection next week, which sat at 3.5 percent in the March MPS.


(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Post-Post: Brian Roche To Step Down As NZ Post CEO

Brian Roche will step down as chief executive of New Zealand Post in April 2017, having led the state-owned postal service's drive to adjust to shrinking mail volumes with a combination of cost cuts, asset sales, modernisation and expansion of new businesses. More>>

ALSO:

Company Results: Air NZ Rides The Tourism Boom With Record Full-Year Earnings

Air New Zealand has ridden the tourism boom and staved off increased competition to deliver the best full-year earnings in its 76-year history. More>>

ALSO:

New PGP: Sheep Milk Industry Gets $12.6M Crown Funding

The Sheep - Horizon Three programme aims to develop "a market driven, end-to-end value chain generating annual revenues of between $200 million and $700 million by 2030," according to a joint statement. More>>

ALSO:

Half Full: Fonterra Raises Forecast Milk Price

Fonterra Co-operative Group Limited today increased its 2016/17 forecast Farmgate Milk Price by 50 cents to $4.75 per kgMS. When combined with the forecast earnings per share range for the 2017 financial year of 50 to 60 cents, the total payout available to farmers in the current season is forecast to be $5.25 to $5.35 before retentions. More>>

ALSO:

Keep Digging: Seabed Ironsands Miner TransTasman Tries Again

The first company to attempt to gain a resource consent to mine ironsands from the ocean floor in New Zealand's Exclusive Economic Zone has lodged a new application containing fresh scientific and other evidence it hopes will persuade regulators after their initial application was turned down in 2014. More>>

Wool Pulled: Duvets Sold As ‘Premium Alpaca’ Mostly Sheep’s Wool

Rotorua business Budge Collection Limited (Budge) and sole director, Sun Dong Kim, were convicted and fined a total of $71,250 in Auckland District Court after each pleading guilty to four charges of misrepresenting how much alpaca fibre was in their duvets. More>>

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news