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Nomura suggests the RBNZ will lift the OCR by 50 basis points and this would warrant, and likely gain, global attention

Currencies / news
Nomura suggests the RBNZ will lift the OCR by 50 basis points and this would warrant, and likely gain, global attention

With the Reserve Bank expected to again increase the Official Cash Rate (OCR) on Wednesday afternoon, it's being touted as a bellwether for other central banks.

Andrew Ticehurst, Executive Director, Senior Economist and Rate Strategist at Nomura in Sydney, suggests a 50 basis points increase to 1%, is the most likely scenario. The Reserve Bank increased the OCR by 25 basis points to 0.50%, its first increase in seven years, at its previous review on October 6. That lifted the OCR off its record low.

Most observers expect it will today increase the OCR by another 25 basis points and signal further increases to come. That said, the possibly of a 50 basis points increase has been widely discussed.

"Rather than simply moving with other central banks, New Zealand may well be a bellwether for other countries, particularly those that provided aggressive policy support, post-crisis, and which weathered the pandemic relatively well," Ticehurst says.

"With the crisis receding, the need for emergency accommodation is rapidly fading, and New Zealand may not be the only country at risk of falling behind the curve. While a small nation, by population, New Zealand has been a leader for decades on the monetary policy front. We think a 50 basis points hike would warrant – and likely gain – global attention."

The Reserve Bank has been heralded as a global bellwether before, including in the post Global Financial Crisis world of 2014 when it lifted the OCR by 100 basis points to 3.50%. In early 2015 it received The Central Bank of the Year award from London-based Central Banking Publications, in recognition of innovative work to enhance its contribution to the New Zealand economy. In 2015 the Reserve Bank reversed the 2014 OCR increases in full, dropping it back to 2.50%.

In terms of expecting a 50 basis points increase, Ticehurst points to the recent run of strong NZ economic data including second quarter Gross Domestic Product, the third quarter Consumers Price Index, the 3.4% third quarter unemployment rate, and October house price data from the Real Estate Institute of New Zealand showing prices up by about 30% year-on-year. Added together this points to an overheating economy, he says.

Furthermore after today's review, the Reserve Bank's Monetary Policy Committee isn't scheduled to meet again until February 23.

"Because of the three-month gap between meetings, we see merit in a harder tap on the brakes, and one which would result in the cash rate finishing the year at a symmetrical 1.00%," says Ticehurst.

"Although New Zealand is still reporting, for it, notable COVID-19 case numbers, these do appear to have peaked. Also, vaccination rates have risen, and a progressive reopening plan, including for Auckland, is now unfolding. Mobility has picked up from the lows, and we think further gains are in store. Business sentiment has turned down a little, but we think this reflects prior growth in COVID-19 numbers and associated restrictions and – examining Australia’s experience – we expect a quick rebound."

Nomura expects the OCR to be 2% by the end of 2022.

And with NZ commodity prices elevated, Ticehurst doesn't believe the Reserve Bank is uncomfortable with the level of NZ dollar. At the time of writing it was at US69.6 cents, AU96.2c, €61.9c, with the TWI-5 (Trade Weighted Index) at 74.3.

In fact last Friday Ticehurst said: "Recent respective commodity price developments and likely relative central bank action supports NZ dollar over AU dollar, in our view, and we today enter a short AUD/NZD position."

The Reserve Bank of Australia has been pushing back against market pricing for an interest rate hike in 2022, with its cash rate target currently at 10 basis points. 

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45 Comments

I think RBNZ will take into account the Covid scene, daily cases, traffic light confusions, lack of international visitors, uncertainty about the business during summer, etc and will increase by 0.25% only, if at all.

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5

Yes, RBNZ is... world leading, in New Zealand. 

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7

Uncertainty about what level of drought parts of the country will get to.

Uncertainty about if/how many tropical cyclones come our way.

Uncertainty about ...... oh heck, any excuse will do.

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10

Three losses by the All Blacks in a calendar year. OCR held.

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21

Thank goodness it was only three. A fourth loss would have been an immediate cut of 0.5 to sure up confidence.

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4

Wouldn't have happened under a National government.

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The Covid excuse has completely run its course and has no traction whatsoever any longer. The RBNZ must stop wrecking the NZ economy and financial system with the current unsustainable ultra-loose monetary policy, and act now. A minimum 50 bps increase is necessary now.

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11

So COVID & restrictions are over?! 
It’s only just getting started in NZ and Govt wage & business subsidies about to cease.  

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Delta will get only worse from here on, with more opening of the country. The cases are bound to go up all over the country. The key is for the Hospitals to be able to cope. Summer is not going to be a Picnic.

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0.25% it is.

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It is almost irrelevant what the Chief Ponzi Officer does today.  The Wholesale market is already factoring the increased risks.  His commentary will be most interesting and will probably be that he is doing God's work protecting us from Covid Economic Doom with some least regrets policy.  While at the same time driving one of NZ biggest Social disasters over the Covid period being a 40% increase in house prices. 

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33

Hear, hear! Perfect comment.

The RBNZ is fast losing credibility and becoming irrelevant. The swap markets know it very well and they are pricing the inevitable course that the RBNZ will be, sooner or later. forced to follow, willing or not. The RBNZ has now only two options:

- pretend that they have do not have a serious problem in their hands caused by them, and be forced to raise rates to even higher levels later on

- or finally acknowledge reality, and start raising rates aggressively now in order to proactively control the situation as much as possible

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The wholesale market is pricing in what it thinks RBNZ will do. If RBNZ announced that it was going to hold rates and take any actions deemed necessary to control the yield curve, the wholesale market would come back into line quickstep. I am not saying RBNZ will do this, just that the 'markets' don't dictate rates - especially when we are an outlier internationally.

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RBNZ 'may well be a bellwether for other countries'

First let it be for its own country - NZ.

Gareth Vaughan is an expert and says that Mr Orr will increase by 0.5% but even an average person knows that Mr Orr will raise it by 0.25%.

One does not have to be an expert but just understand where Mr Orr stands, as he stands exposed and if he does by chance raise by 0.5% than their is a disaster in waiting, which he is aware and we will know in near future (We are aware of looming crisis, which in inevitable as economy fundamental has been tampered).

 

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I am not saying the RBNZ will increase by 50 basis points. Nomura's Andrew Ticehurst is suggesting that.

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Sorry Gareth, my error. 

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The most fascinating part of this article is I found out there is a Central Bank of the Year awards! I am somehow both shocked and pleased that such an award exists. On the one hand, I cannot imagine such a back slapping, self aggrandising bunch of nincompoops who believe themselves to be so good that they must issue forth awards to their members for who hath read the tea leaves the best.  On the other hand, awards to celebrate actual competence in your subject area can only be encouraged, when said subject area is run almost exclusively by a bunch of individuals caught up in group think because they all read the same economics books that appear to be mostly wrong.  If only there were matching raspberry awards, but I suspect there would be far too many top contenders for those that picking winners (or losers) would be far too difficult.

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11

Real Estate Lobby trying to maintain FOMO :

https://www.oneroof.co.nz/news/40554

If OCR going up will not have any effect because of external factors that have already kicked interest up, RBNZ should use this opportunity to move by 0.5% but knowing Orr is skeptical as very hard for his physic to act in opposite direction by himself.

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6

Indeed, but the underlying message rings true. Banks have already built in .5% increase and expect it as some time or another. In the meantime its just extra profit until the RBNZ gets out of bed and catches up with the OCR. Interestingly he also points to acceptance that DTI of 6x is inbound. Have to say I would not want to be a highly leveraged specuvestor in the next couple of years.

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Did you read the article, or just the first paragraph?  Predicting a reduction in FOMO is basically the opposite of stoking FOMO. 

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Unless the Central Bank owners are about to orchestrate a global "rug pull" from under global debt, and NZ has been instructed to be the path finder I cannot think of a time where NZ set the tune for financial guidance globally. We are simply to small.

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Should go .50% which would then pick up the August Covid on hold decision that otherwise would have been a .25%.

Anything less than taking it to 1% basically still has the OCR at emergency settings – clearly there is no longer an emergency – what on earth is the RBNZ struggling with when it comes to this.

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With Nomura entering a short AUD/NZD position, multiple NZD  charts offer an outsized short and medium  term response to an unexpected OCR outcome. GBP in particular and CHF offer interesting breakouts

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The Reserve Bank has been heralded as a global bellwether before, including in the post Global Financial Crisis world of 2014 when it lifted the OCR by 100 basis points to 3.50%. In early 2015 it received The Central Bank of the Year award from London-based Central Banking Publications, in recognition of innovative work to enhance its contribution to the New Zealand economy. 

But this time is different, our housing market is in a completely different situation from 7 years ago. I think they should increase 50 basis points to 1% this time. But whether they actually fullfill their mandate or not is another story.  They claim that housing price movement is not in their mandate. But I highly doubt it especially see how they handle and implement DTI at the moment.

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They've already committed to 25bps increases as I understand it. Don't understand why but they wanted to hobble themselves for one reason or another.

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There was some Maori mythological basis to the decision i think.

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Yawn hardly world news. World news is the release of some of the USA oil reserves to try and limit rapidly rising petrol costs over there. Like I have been saying for months its $3 a liter Petrol for Aucklanders by Christmas. Our OCR should go up 0.5% today, its a no brainer.

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I will be be very, very surprised if they go 50bp. They still believe that super-low interest rates are great for the economy and employment; it's nonsense, but they believe it. Inflation hasn't quite hit us yet outside of fuel (and of course housing, which they don't see as inflation but as the creation of wealth). To raise rates goes against their sincerely held and immune-to-empirical-evidence beliefs and it'll take more than petrol prices to change their minds. No rate change due to 'signs of fragility' and 'too soon', that's my pick. 

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They believe what suits them and want to believe.

Collecting data and information is all BS. If they were actually going by fundamentals and what data suggest, would have acted long time but they read the data and analysis to suit their vested interest and move backward with reasoning.

See the reasoning that comes out from rbnz in today's announcement.

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ANZ's interest rates as of today:

2 year fixed term home loan: 4.95%pa

2 year fixed term deposit: 2.5%pa

A gap of 2.45%pa.

The banks are taking us for a ride - blaming inflation and the OCR for them having to hike mortgage rates, yet the same logic doesn't apply to deposits!

So everyone calling for a hike in the OCR to address inflation are going to find themselves on the losing side of the equation for a few years to come.

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it is because they dont need the deposits as as margins increase will need even less

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So therefore, you could argue the RBNZ can afford to put downward pressure on interest rates because banks' margins are so large that it is the banks themselves driving inflation.

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Where'd you get that 2 year fixed rate from? 

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ANZ's standard rates here: https://www.anz.co.nz/personal/home-loans-mortgages/loan-types/fixed/

Listed rate as of this morning.

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That'll be the standard non-special 2 year hence higner amount.

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If 50bpts is the actual increase, are banks going to lower rates after their recent increases of +1% or are they going to keep increasing their margins on the shoulders of working NZders?

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Exactly - if the OCR goes up 0.5%, that puts the OCR at 1.00%, up 0.75% since October. And if it goes up by the 0.25% most people are picking, then that's a 0.50% increase since Oct. Yet mortgage rates have risen by in some cases 2% over the same time frame.  Way out of proportion to the OCR increase.

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I guess for a bank though, they look more at the curve. For instance if they only raise existing rates by 1% for a 3 year home loan and by year 2 rates are already at 2%... nah what am I talking about, they are just ripping us all off.

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I guess you are referring to the curve of their new yacht.

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'the need for emergency accommodation is rapidly fading' 

Really? Maybe I'm misunderstanding what this statement means. In June the public housing waitlist was nearly 25,000 applicants long. Thousands of people in emergency accommodation, motels etc.

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Should be 0.5% - hoping it is 0.5%. Head says 0.25%

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Was reading an article that banks need 9 Months to impliment DTI, really and does RBNZ have to as pre approval is modtly for three months, so nine month.

May be to whip up FOMO and use the opportunity to go on rampage.......

Why does Mr Orr  not make them aware that will be from...set date and be prepared, give them heads up instead playing dirty tactics.

https://thekaka.substack.com/p/dawn-chorus-trying-to-reduce-leverage?to…

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"With the crisis receding, the need for emergency accommodation is rapidly fading …”. 
 

Oh, I didn’t realise that COVID was over in NZ and that all the subsidies propping up all the destroyed locked up businesses would keep going forever.  
 

And that  tens of 1000s of poor motel families are all now satisfactorily into their first home.  

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The housing crisis in NZ is at full speed ahead. I fear the covid crisis hasn't even left drydock yet.

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Increased by 0.25%. Out now.

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