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


RBNZ Observer: On hold, with a longer pause now expected

The RBNZ Observer: On hold, with a longer pause now expected

- Having delivered 100bp of hikes and with dairy prices falling, the RBNZ is expected to hold steady next week

- Timely indicators of business and consumer sentiment have stepped back from high levels, although inward migration remains strong and the Canterbury rebuild is on-going

- Given some easing in conditions and the dairy price fall, we now expect the RBNZ to be on hold for the rest of this year, with the next hike expected in Q1 2015 (previously Q4 2014)

The RBNZ has time on its side
The rate hikes are over for now. With 100bps of interest rate hikes delivered between March and July, the RBNZ made it clear at the last meeting that it is on hold for the time being. And recent activity indicators suggest that some of the shine has been taken off the economy’s boom – meaning an extended pause from the RBNZ looks prudent.

With a no-change decision widely anticipated, more interest will be focused on the tone of the Monetary Policy Statement and the accompanying forecasts. Over the past few months, prices for key export commodities have continued to decline, impacting incomes. At the same time, business and consumer sentiment have softened, as has the housing market – all suggesting that higher interest rates are already restraining activity.

While the RBNZ’s forecasts may be a little softer that those published in June, they will almost certainly be more hawkish than current market pricing. In June, the RBNZ’s forecasts implied an OCR of around 4.5% at end-2015, whereas market pricing has now fallen to imply an OCR of only around 3.75% by that point.

We remain optimistic about New Zealand’s growth prospects. Even though indicators have moderated a little recently, they remain at healthy levels overall and we still expect the economy to grow by +3.5% over 2014 and +3.0% over 2015. With growth continuing to exceed potential, the economy’s spare capacity will likely diminish further and more inflationary pressure is expected to be generated.

The key judgment for the RBNZ is just how much inflation will be generated and when. So far, despite strong economic growth, inflation has been well-contained. The same is true of wages and forward-looking indicators of firms’ pricing intentions. With the inflation outlook still benign, the RBNZ has time on its side. We now expect it to remain on hold for the rest of 2014, before resuming a hiking stance in early 2015.

© Scoop Media

Business Headlines | Sci-Tech Headlines


DIY: Kiwi Ingenuity And Masking Tape Saves Chick

Kiwi ingenuity and masking tape has saved a Kiwi chick after its egg was badly damaged endangering the chick's life. The egg was delivered to Kiwi Encounter at Rainbow Springs in Rotorua 14 days ago by a DOC worker with a large hole in its shell and against all odds has just successfully hatched. More>>


Trade: Key To Lead Mission To India; ASEAN FTA Review Announced

Prime Minister John Key will lead a trade delegation to India next week, saying the pursuit of a free trade agreement with the protectionist giant is "the primary reason we're going" but playing down the likelihood of early progress. More>>



MYOB: Digital Signatures Go Live

From today, Inland Revenue will begin accepting “digital signatures”, saving businesses and their accountants a huge amount of administration time and further reducing the need for pen and paper in the workplace. More>>

Oil Searches: Norway's Statoil Quits Reinga Basin

Statoil, the Norwegian state-owned oil company, has given up oil and gas exploration in Northland's Reinga Basin, saying the probably of a find was 'too low'. More>>


Modern Living: Auckland Development Blowouts Reminiscent Of Run Up To GFC

The collapse of property developments in Auckland is "almost groundhog day" to the run-up of the global financial crisis in 2007/2008 as banks refuse to fund projects due to blowouts in construction and labour costs, says John Kensington, the author of KPMG's Financial Institutions Performance Survey. More>>


Health: New Zealand's First ‘No Sugary Drinks’ Logo Unveiled

New Zealand’s first “no sugary drinks logo” has been unveiled at an event in Wellington... It will empower communities around New Zealand to lift their health and wellbeing and send a clear message about the damage caused by too much sugar in our diets. More>>


Get More From Scoop

Search Scoop  
Powered by Vodafone
NZ independent news