Okay, everybody can go and sit back down now.
For the first time in nearly two years the forthcoming review of the Official Cash Rate (OCR) by the Reserve Bank (Wednesday July 12) is not a 'live one'.
That is to say, that for the first time since the middle of 2021 the overwhelming expectation is that the RBNZ will 'do nothing'. That's right, NO movement to the OCR.
Time for us all to have a cuppa and a breather, because this past nearly two years has been a wild ride.
We've had 12 consecutive increases to the OCR, taking it from the historic-low, pandemic-emergency, setting of 0.25% all the way up to 5.5% - its highest level since late 2008.
A wild ride alright.
The speed of the rise has been unprecedented.
And it is all about trying to tame inflation.
It seems really hard to imagine now but it was only at the OCR review two years ago almost to the day that the RBNZ officially called a halt to its quantitative easing ('money printing') large Scale Asset Purchase (LSAP) programme.
And with the benefits of a truckload of hindsight, I found these comments made by the RBNZ's Monetary Policy Committee at the time fascinating:
The Committee agreed that, in the absence of any further significant economic shocks, more persistent consumer price inflation pressure is expected to build over time due to rising domestic capacity pressures and growing labour shortages. However, the Committee noted that uncertainties remain as to the pace and magnitude of any pass-through of costs onto medium term inflation, especially given reported underutilisation of labour, modest wage growth, and well anchored inflation expectations.
The Committee noted that medium-term inflation and employment would likely remain below its Remit objectives in the absence of some ongoing monetary support. However, the Committee agreed that the level of monetary stimulus could now be reduced to minimise the risk of not meeting its mandate.
Just two days later, Stats NZ released the Consumers Price Index for the June 2021 quarter and it was, as interest.co.nz reported at the time, a "scorcher", showing annual inflation bursting out of the Reserve Bank's 1%-3% target range with a 3.3% figure. Game on.
So, the August 2021 RBNZ review of the OCR officially became a 'live one', with the universal expectation that the OCR would be lifted for the first time since mid-2014. And it most certainly would have been - if Auckland hadn't decided to have the start of its Covid Delta outbreak on August 17, the day before the OCR decision.
We therefore had the strange spectacle of the RBNZ's Monetary Policy Statement on August 18, 2021 giving supporting words and context to an interest rate hike that didn't happen!
Of course we didn't have long to wait. The balloon officially went up on October 6, 2021 and the OCR was raised by 25 basis points to 0.5%.
This rise was followed by another two 25 point rises at each of the next two OCR reviews.
This steady, methodical rise of the OCR was given the mantra of "considered steps" by the RBNZ.
However, as the months went on and it became more and more clear that rising inflation was less 'transitory' and more 'runaway freight train' then so considered steps gave way to calculated leaps. In April 2022 the RBNZ went for a 50-point jump to the OCR, which was followed by another four moves of the same size. In the meantime annual inflation hit a peak of 7.3% for the June 2022 quarter.
Then, on November 23, 2022, in the RBNZ's last OCR call before a three-month summer break, the blunderbuss came out and we were hit with a 75-pointer to send us all reeling off on holiday. Merry Christmas everyone.
This year we've seen two more 50 point rises, followed by a 25-pointer at the last OCR review in late May, along with strong indications that this would be the last hike for the foreseeable future.
So, that's definitely it for now? No chances of a surprise hike on Wednesday? Well, no. Not this time.
There's been little in the way of major economic data released since the RBNZ's last OCR review on May 24 - but what there has been has definitely indicated the RBNZ should now be sitting tight.
GDP figures for the March quarter came out on June 15. The RBNZ had forecast growth of 0.3%, but in fact the economy shrank by 0.1%, giving us two consecutive quarters of 'negative growth' and putting us (by technical description) in 'recession'. Card spending data for May was "much weaker than expected", with a 1.9% seasonally-adjusted drop pointing to a significant slowdown starting.
And then in the past week or so we've seen a sharp rise in the number of non-performing mortgage loans, an NZIER Quarterly Survey of Business Opinion showing some marked declines in labour market and capacity pressures, credit bureau Centrix's latest monthly Credit Indicator Report showing higher consumer arrears and mortgage delinquencies, and the latest Crown Accounts for the 11 months to May 2023 showing a deteriorating financial position, with tax revenues coming up more than $2 billion short of projections - a clear sign of a slowing economy.
There's more than enough there to justify the RBNZ being able to raise its hand once again and say 'no more' to OCR rate rises - at least for now.
So, given that we won't have what has been the natural focal point of the OCR reviews for the past two years, IE a moving rate decision, this time we'll have to busy ourselves with looking at the details in the RBNZ statement and accompanying record of the Monetary Policy Committee meeting.
This decision will not be accompanied by a Monetary Policy Statement - that will come with the next review, slated for August 16, 2023. This time, therefore, there will not be any updated forecasts.
What we will need to pay attention to is whether there is any marked variance in the commentary from the previous one in May, IE whether there's anything that suggests the RBNZ may be changing its mind about no OCR hikes for the foreseeable future. This is what the RBNZ said in May in its key sign-off paragraph:
The Committee is confident that with interest rates remaining at a restrictive level for some time, consumer price inflation will return to within its target range of 1% to 3% per annum, while supporting maximum sustainable employment.
I would expect a similar 'key' paragraph to end the OCR statement in the coming week. What the above statement tells you in effect is that the RBNZ is by no means declaring 'victory' over inflation yet (not with it still at 6.7% as of the end of March) and that it isn't intending to raise interest rates now, but it doesn't want to see them fall either.
So, in other words the RBNZ thinks it's done enough hikes, but rates need to stay restrictive to ensure inflation really is killed. The RBNZ's forecast (as of May) is that it won't start dropping rates till the second half of next year. It's unlikely to say anything about the timing of rate cuts in the coming week, since such talk without a full explanation - probably through a Monetary Policy Statement - would cause the financial markets to start second-guessing.
The RBNZ would be very happy with where wholesale interest rate pricing is at the moment, since at current levels (at time of writing) falls in interest rates are not being priced in till next year. That's a change from the situation till recently when a fair few observers and market participants were expecting there could be falls later THIS year. The RBNZ absolutely doesn't want such speculation and so, as I say, it will be happy with current sentiment in the financial markets.
And there we have it. The 'heavy lifting' (of interest rates) is done. Now in the parlance of the RBNZ itself it is time for us all to 'watch, worry and wait'.
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