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

 


The RBNZ Observer: Expect another 25bp hike next week

The RBNZ Observer: Expect another 25bp hike next week

• Timely indicators suggest some moderation recently, although growth is still running at an above-trend pace
• Inflation has surprised on the downside, so we have revised down our CPI forecast for 2014 to 1.7% (from 1.9%), but we still expect it to rise to 2.5% in 2015
• Strong forward guidance suggests the RBNZ is keen to stay ahead of the game, so we expect another 25bp hike next week, before it pauses for the next few months

Staying ahead of the game
New Zealand is booming. Q1 GDP rose by a strong +3.8% y-o-y and timely indicators suggest that this pace probably continued into Q2. The GDP numbers, which were released since the last RBNZ announcement, confirmed that construction activity has been a key driver of growth. The post-earthquake Canterbury rebuild leads the way, but low rates and land release policy changes are also supporting strong construction in Auckland.

In response, the RBNZ has lifted its cash rate by 75bp since March, making it the first central bank in the developed world to commence its hiking cycle. This month brought some early, tentative signs that tighter monetary policy is starting to work. Business conditions have stepped down, although they still remain at levels consistent with above-trend growth. The previously overheating housing market has eased back a bit in recent months. At the same time, dairy prices have fallen from their record high levels. Our assessment is that growth has gone from very strong to strong, as higher rates start to bite.

At the same time, the NZD has been exceptionally high, reflecting that rates remain low in most of the world, so New Zealand assets look attractive. In turn, this has delivered a gift to the RBNZ. While growth is above trend, inflation is still low, with the Q2 CPI showing inflation in the lower half of the target band (+1.6% y-o-y).

With inflation remaining low, the RBNZ could choose to hold steady next week. On the other hand, growth is still above trend and the central bank needs to be forward looking. In addition, central bank officials have been clear in recent months that they want to stay ahead of the game in the face of upside risks to inflation. Given this strong forward guidance and continued above-trend growth, we expect a further 25bp hike next week, to 3.50%. However, with inflation still low and an election due in September, we expect rates will then be on hold for at least a few months. As we expect inflation to pick up in H2, we still see another hike in Q4, though much depends on the next inflation print.

Click here for the full report.

ENDS

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Fossils: Ancient Penguins Lived Alongside Dinosaurs?

Penguins are much older than previously thought and their evolution probably dates back to the days of the dinosaurs, according to research on the fossilised leg bone and toes of a giant ancient penguin found in rocks near Waipara, North Canterbury. More>>

No Voda/Sky: Commission Declines Clearance For Merger

The Commerce Commission has declined to grant clearance for the proposed merger of Sky Network Television and Vodafone New Zealand. More>>

ALSO:

EARLIER:

Power: IEA Report On New Zealand's Energy System

Outside of its largely low-carbon power sector, managing the economy’s energy intensity and greenhouse gas emissions while still remaining competitive and growing remains a challenge. More>>

ALSO:

NASA: Seven Earth-Size Planets Around A Single Star

NASA's Spitzer Space Telescope has revealed the first known system of seven Earth-size planets around a single star. Three of these planets are firmly located in the habitable zone, the area around the parent star where a rocky planet is most likely to have liquid water. More>>

ALSO:

Auckland Transport Case: Men Guilty Of Corruption And Bribery Will Spend Time In Jail

Two men who were found guilty of corruption and bribery in a Serious Fraud Office (SFO) trial have been sentenced in the Auckland High Court today... The pair are guilty of corruption and bribery offences relating to more than $1 million of bribes which took place between 2005 and 2013 at Rodney District Council and Auckland Transport. More>>

ALSO:

Hager Raid: Westpac Wrong To Release Bank Records To Police

The Privacy Commissioner has censured Westpac Banking Corp for releasing without a court order more than 10 months of bank records belonging to the political activist and journalist Nicky Hager during a police investigation into leaked information published in Hager's 2014 pre-election book, 'Dirty Politics'. More>>

ALSO:

EARLIER:

Get More From Scoop

 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news