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

 

Sky City : Auckland Convention Centre Cost Jumps By A Fifth

SkyCity Entertainment Group, the casino and hotel operator, is in talks with the government on how to fund the increased cost of as much as $130 million to build an international convention centre in downtown Auckland, with further gambling concessions ruled out. The Auckland-based company has increased its estimate to build the centre to between $470 million and $530 million as the construction boom across the country drives up building costs and design changes add to the bill.
More>>

ALSO:

RMTU: Mediation Between Lyttelton Port And Union Fails

The Rail and Maritime Union (RMTU) has opted to continue its overtime ban indefinitely after mediation with the Lyttelton Port of Christchurch (LPC) failed to progress collective bargaining. More>>

Earlier:

Science Policy: Callaghan, NSC Funding Knocked In Submissions

Callaghan Innovation, which was last year allocated a budget of $566 million over four years to dish out research and development grants, and the National Science Challenges attracted criticism in submissions on the government’s draft national statement of science investment, with science funding largely seen as too fragmented. More>>

ALSO:

Scoop Business: Spark, Voda And Telstra To Lay New Trans-Tasman Cable

Spark New Zealand and Vodafone, New Zealand’s two dominant telecommunications providers, in partnership with Australian provider Telstra, will spend US$70 million building a trans-Tasman submarine cable to bolster broadband traffic between the neighbouring countries and the rest of the world. More>>

ALSO:

More:

Statistics: Current Account Deficit Widens

New Zealand's annual current account deficit was $6.1 billion (2.6 percent of GDP) for the year ended September 2014. This compares with a deficit of $5.8 billion (2.5 percent of GDP) for the year ended June 2014. More>>

ALSO:

Still In The Red: NZ Govt Shunts Out Surplus To 2016

The New Zealand government has pushed out its targeted return to surplus for a year as falling dairy prices and a low inflation environment has kept a lid on its rising tax take, but is still dangling a possible tax cut in 2017, the next election year and promising to try and achieve the surplus pledge on which it campaigned for election in September. More>>

ALSO:

Job Insecurity: Time For Jobs That Count In The Meat Industry

“Meat Workers face it all”, says Graham Cooke, Meat Workers Union National Secretary. “Seasonal work, dangerous jobs, casual and zero hours contracts, and increasing pressure on workers to join non-union individual agreements. More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

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