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

Gordon Campbell:
On Anne Tolley’s
Callous Folly

Years ago, I remember someone in the Heath Ministry telling me off the record that regulatory oversight in this country largely consisted in ‘waiting for something to turn green or fall off somebody’ before the authorities would swing into action...

Last week’s conflict between Social Development Minister Anne Tolley and District Court judge Carolyn Henwood illustrated quite a few of the flaws in the system. More>>

 

Members’ Bills: Greens' Domestic Violence And Loans Bills Pulled From Ballot

Jan Logie’s Domestic Violence-Victims' Protection Bill introduces workplace protections for victims of domestic violence, including allowing victims to request paid domestic violence leave for up to 10 days... Gareth Hughes’ Bill allows Kiwis with student loans to defer their student loan repayments into a first home savings scheme. More>>

ALSO:

IPCA: Police Did Not 'Deliberately' Use Pepper Spray On 10-Year-Old

"When spraying the man, the officer did not properly consider the necessity of using pepper spray in a confined space, the likelihood that it would affect the other innocent passengers or the fact that he was using a more powerful spray." More>>

ALSO:

Donor Bill Passes: Full Income Compensation For Live Organ Donors

Unanimous cross-party support for the Compensation for Live Organ Donors Bill represents a critical step in reducing the burgeoning waiting list for kidney donations, according to Kidney Health New Zealand chief executive Max Reid. More>>

ALSO:

Earthquake Response: Emergency Legislation Prepared

Three new Bills have been drafted in the wake of the magnitude 7.8 earthquake on November 14 to ensure the government can enable affected communities to respond quickly and efficiently. More>>

ALSO:

Housing MPs: New Building(s) For Parliament

A new building will be erected on Parliament grounds to house Members of Parliament and their staff who currently work in leased accommodation in Bowen House. The plan has cross-Party support, apart from NZ First, said Parliament’s Speaker, Rt Hon David Carter. More>>

ALSO:

Get More From Scoop

 

LATEST HEADLINES

 
 
 
 
 
 
 
 
Politics
Search Scoop  
 
 
Powered by Vodafone
NZ independent news