Gordon Campbell | Parliament TV | Parliament Today | News Video | Crime | Employers | Housing | Immigration | Legal | Local Govt. | Maori | Welfare | Unions | Youth | Search

 


Another hike delivered, with more to come

RBNZ Observer Update: Another hike delivered, with more to come

The RBNZ increased its cash rate by +25bp to 3.00% today, as expected. The economy is picking up strongly and the RBNZ has continued on a path to return rates to more normal levels, to keep inflation contained. The central bank kept the prospect of further rate hikes at coming meetings open, however, the statement expressed increased concern over the high NZD. Overall, with demand continuing to rise strongly, we expect the central bank to hike rates further in 2014, with a 25bp increase at the June meeting likely. However, a strengthening exchange rate may mean slightly fewer hikes than the market is currently pricing.

Facts
- The RBNZ increased its cash rate by 25bp to 3.00%, as expected by all 15 surveyed analysts (including HSBC).

- On the outlook for policy, the RBNZ noted ‘the speed and extent to which the OCR will be raised will depend on economic data and our continuing assessment of emerging inflationary pressures, including the extent to which the high exchange rate leads to lower inflationary pressure’.

- On the economy, the RBNZ stated ‘New Zealand’s economic expansion has considerable momentum’.

- On the NZD, the RBNZ noted that ‘the Bank does not believe the current level of the exchange rate is sustainable’.

Implications
The RBNZ continued on a path of returning interest rates to more normal levels, by raising its cash rate by 25 basis points to 3.00%. The New Zealand economy continues to pick up strongly, supported by post-earthquake reconstruction, rising house prices, increased consumer spending and strong migrant inflows. With demand rising and the economy already at capacity, the RBNZ needs to move gradually away from current loose monetary settings to keep inflation in check.

Today’s statement from the central bank suggested that this process is likely to continue at upcoming meetings. The central bank noted ‘the speed and extent to which the OCR will be raised will depend on economic data and our continuing assessment of emerging inflationary pressures, including the extent to which the high exchange rate leads to lower inflationary pressure’. With the economy on track to post one of the strongest growth rates in the OECD this year, we expect the central bank to follow up with a further 25bp hike at the June meeting.

However, a couple of factors may hold back the extent of further rate hikes in 2014 (the market is currently pricing another 60bps before year-end). First, the RBNZ remain concerned about the high NZD, explicitly noting its strength in today's policy statement. The NZD TWI is now +2.5% above their March projections. Second, the pace of decline in dairy prices is also likely to have surprised the central bank. In March, RBNZ projections implied a 3.75% cash rate by year-end. We expect the stronger NZD and drop in export prices to limit the increase to 3.50%.

Bottom line
The RBNZ increased its cash rate to 3.00%, as expected.

With demand continuing to pick-up strongly in New Zealand, we expect further hikes in 2014 with a 25bp increase at the June meeting likely.

However, the elevated exchange rate and the recent fall in export prices may mean slightly fewer hikes this year than the market is currently pricing.

http://img.scoop.co.nz/media/pdfs/1404/HSBC_Research_RBNZ_Observer_Update__Another_hike_delivered_with_more_to_come_2014.04.24.pdf.zip
Ends

© Scoop Media

 
 
 
 
 
Parliament Headlines | Politics Headlines | Regional Headlines

 

Parliament Today:

'When New' Repairs: Landmark EQC Settlement

The Earthquake Commission has cut a deal with 98 Canterbury homeowners that affirms the government entity's responsibility to repair earthquake-damaged property to a 'when new' state, as well as covering repairs for undamaged parts of a property and clarifying its position on cash settlement calculations. More>>

ALSO:

Gordon Campbell: On Kiwirail’s Latest Stint In The Dogbox

The denigration of Kiwirail continues. The latest review (based on a 2014 assessment) of the options facing the company have enabled Kiwirail to be hung out to dry once again as a liability and burden on the taxpayer. More>>

ALSO:

Royal Society Report: Good Opportunities To Act Now On Climate Change

There are many actions New Zealand can and should take now to reduce the threat of climate change and transition to a low-carbon economy, a report released today by the Royal Society of New Zealand finds... More>>

ALSO:

Paris Climate Deal Signed: Bennett 'Taking Advice' On Cancelling 'Dodgy' Credits

Climate Change Minister Paula Bennett is "taking advice" on whether to cancel some or all of the so-called 'dodgy' carbon credits bought mainly by power and petrol companies to cover New Zealand's future obligations to reduce emissions of greenhouse gases that cause climate change. More>>

ALSO:

Gordon Campbell: On Having An Extradition Treaty With China

Reportedly, an extradition treaty with China is now on the table, although – thankfully – Prime Minister John Key has also indicated that a lot of detailed work would be required before any such arrangement took final shape, much less came into force... More>>

ALSO:

Get More From Scoop

 

LATEST HEADLINES

 
 
 
 
 
 
 
 
 
Politics
Search Scoop  
 
 
Powered by Vodafone
NZ independent news