Sharon Zollner, chief economist at ANZ New Zealand, says the Reserve Bank (RBNZ) may lift the Official Cash Rate (OCR) to 6% at its next meetings in February and April.
In a note released at midday on Friday, the top economist at the country’s largest retail bank said a series of “small but unwelcome surprises” was enough to restart the hiking cycle.
These include strong consumption growth, slightly higher non-tradable inflation, and a more resilient than expected labour market.
“None of them are game changers, but given the starting point was the RBNZ already very nearly over the line to hike again, no game changers are needed,” Zollner said.
In addition to these bigger news items, there were other indicators of capacity pressure in second tier economic surveys and high-frequency economic activity data.
Strong net migration, recovering commodity prices, and a decline in wholesale interest rates were also reasons the central bank might want to lift interest rates further.
Zollner said there was a “pretty long list” of hawkish developments that should add up to a higher OCR track than was included in the November Monetary Policy Statement.
That November update signalled the RBNZ’s Monetary Policy Committee would likely hike interest rates again if there was any delay to inflation being back in the target band.
“Indeed, their OCR forecast peak of 5.69% implied that the burden of proof was now on finding reasons not to hike, strictly speaking”.
Zollner said it wasn’t worth restarting the hiking cycle just for a 25 basis points increase and so two hikes are more likely than none. The OCR is currently at 5.50%.
It was possible the policymakers would hold the rate and try to talk hawkish enough to boost wholesale interest rates, but it already tried that in November with mixed results.
Kelly Eckhold, chief economist at Westpac NZ, said he thought market predictions of another rate hike were "overdone".
He interpreted the new data to mean that rates will be held at 5.50% until 2025 as the central bank “squeezes sticky inflation out of the economy”.
Zollner acknowledged she had “flip-flopped” on her previous forecast and that restarting interest rate hikes would be distressing for many households and businesses.
“The shock value of restarting hiking and re-establishing uncertainty about how high rates might go could have a chilling impact on the housing market and investment beyond what ‘50bp’ would normally mean,” she said.
If this scenario played out, the Reserve Bank would likely cut rates faster to get back to a more neutral rate around a similar time as the previous forecast.
Zollner said it was not unusual for central banks to resume hiking after a pause. The Reserve Bank did so three times after the Global Financial Crisis.
80 Comments
It's even worse than that.
ANZ's bank economists are also implying more people need to lose their jobs, and more people need to be on reduced hours, and more people need to be scrounging around for extra work just to make ends meet. In the face of those near certain risks - according to ANZ - best fix long at the best rate possible, ay?
ComCom has much work to do.
That completely depends on the words that accompany any change. However, in 30 years of watching and analyzing central bank actions I can think of no time when your assertion holds true. I.e. nothing much happens after a small change.
Just look at what happens after an OCR fall - the retail banks take 3+ months to pass it on and seldom pass on all of it until there is another. And before an OCR rise? Again retail banks start raising way in advance of any actual rises and when a rise actually comes they are usually already pricing in the next one (even if it never happens).
So they got their headlines and the market moved so job done. If they don’t hike it’s just an “oh well , back to work “ no consequences to their actions. There should be consequences. Big decisions are made from a wide variety of the community off these types of announcements. And those decisions do have consequences for the people involved.
RBNZ has but one target now which is inflation... if its persistent (locally) its only logical they will use their ownly tool (raising the OCR) to stop it.
Lol - strangely the government holds many of the best cards to prevent the RBNZ raising the OCR... they might choose to slow immigration substantially, stop the planned tax cuts (although its their main policy - it would affect disposable income) and let a ton of government employees go (raise unemployment). Though RBNZ does also have to drastically cut retail spend in order to slow demand and thus the need for staff (else slowing immigration will drive wage prices up.
I agree some short sharp OCR hikes are likely... i cant see an alternative. And if we look at previous economic cycles its more likely than not the OCR will have to go VERY high to curtail inflation - and every time this played out before nobody thought rates would need to go so high.. (we let the inflation genie well outside the box this time)
Hmmm maybe, but if we had all sat tight and put any extra money in against the mortgage of our current house and not bought cars, houses, kitchens, pools, renovations, then maybe things might not have gone so crazy. Don’t get me wrong, I agree they put way too much money out there, but we went and spent it all.
Yes - this just shows the low quality of the politicians we have had for many years. They just carry on with the mass immigration with absolutely no consideration of the costs that come with it. Im also not that sure what the supposed benefits are beyond cheap labour and superficial GDP figures.
It would be good for the RBNZ to call them out on this stuff in a more forthright manner.
Contrary to the comments posted thus far, its not just ANZ turning hawkish. The market has completely removed the cuts that were priced in late 2023 and completely flipped to price another hike in the near term.
1 month ago, 65pts of cuts were priced by December 2024. These have been fully unwound.
A 25pt hike is more than fully priced by March 2024.
https://www.asx.com.au/markets/trade-our-derivatives-market/derivatives…
I still think the unemployment numbers will be much higher now and especially in 3 months. All the government redundancies will kick in before the budget. On top of that from a non-government firm perspective, a lot of companies would have held onto staff through the Christmas/New Year period and when sales etc haven't met forecasts they'll start letting more people go. The June unemployment number will be terrible and the RBNZ has no justification to increase further when their last hike still has at least another 6 months to take full effect.
Thus far the downturn is only really affecting retail and construction/real estate. And they are hanging onto staff it seems.
Everyone else seems to be making good money still and hiring.
Long way to go as usual. Ocr will need edging up a way..downturn will play out over a few years....
Definitely wouldnt want to be exposed to residential or commercial real estate for nezt few years... but i would want to be in the software, marketing or water industry consulting/whatever biz.
Agree. I can't see any evidence for either a rate cut or a rate increase right now. And we basically don't get any new data for another 3 months.
My current prediction is the next change will be a cut but it won't be until next year. But things could change very quickly either way.
All your banks out there are in it to MAKE A PROFIT (forget any social "licensing") at any "COST" ,whoever that cost may fall upon.
They must know there is still too much "froth" out there, ready to pounce on residential property investment, if rates were to fall.
The banks are trying to grow their mortgage books or PROFITS , with FHB's as the "sacrificial lambs" and screw them to the wall with higher rates, to start their property journey, then they will max them out, so FHB's will diminish in the market - THEN they will lower rates and back in will come the investors - and house prices will rise again .....so more mortgages and PROFITS FOR THE BANKSTERS !!!
So glad I'm in crypto and I can play them at their own game and get out of the DEBT "hamster wheel", while their FIAT munny gets more and more worthless by the day, as inflation "steals value" from the proletariat, as time passes.
And for all you people still financially living in 1990's, who diss crypto, we'll see how much your "portfolio" has increased by the end of the year, compared with crypto ???
What's the difference between a property portfolio and a crypto portfolio? Either one still requires the next greater fool to realise gains.... Hodling? If or when crypto actually becomes a currency what then?
Not dissing crypto... dissing that it's just part of the "asset" hype that's literally part of the collective problem.
And it's funny - crypto valued in worthless FIAT money and yet apparently the higher the number of tokens the more "worth" and "value" it has.
Yvil..... read my reply to meh
Been there, done that with property - absolutely brilliant in the very long term, otherwise for 2024 and beyond, I would just concentrate on getting my mortgage paid in full ! Otherwise (for Auckland anyway) property investment is a dead duck,
"The property portfolio produces income, the crypto gamble doesn't." - have you heard of "staking" coins ?
Try living off your rents when times get tough and people lose jobs, or can't get a similar paying job..... then you try and put up your rents to keep up with your expenses, while the tenant would just say "stuff ya rent increase" , I'm heading down the road where I can rent for 25% cheaper. So then you are left with a property earning no income, with all it's overheads - and no prospective tenant that will pay your rent. While if you do get tenants that pay "your" rent, they will overfill the property and create more damage to the property or the more cunning ones will sublet rooms to cover their share of their own rent.
Seen it all, as was a property manager (central Auckland) in the 2000's.
Many would think "well the tenancy tribunal will have my back if the tenant can't pay" that might be true if your tenant is in arrears. But if there's a backlog at the tenancy tribunal because there's an uptick in hearings around other rental arrears? Good luck getting sympathy from the bank I guess?
meh.... yes, in a way you are correct regarding the "greater fool" theory with crypto v. property - however with crypto (using bitcoin or BTC for this example) you are dealing with an asset that has an absolute limit of 21,000,000 BTC and that supply is FINITE.
While have you ever thought about the "tokenisation" of BTC, where you could actually buy a property with BTC or get your salary paid in BTC etc. There is already an organization based in Maui, with expensive properties on Maui and in Honolulu, that when they spend their total capital raised (in USD so NO debt or banks involved) are going to "tokenise" those assets, so a share in these properties can be bought and sold with BTC (or parts thereof) through your crypto wallet, on the blockchain.
With property, you are primarily dealing with DEBT, which as a term deposit is a liability for the banksters, with interest payments and having to pay the principal back. However, with inflation (one of the reasons I got into crypto) that money sitting in a term deposit is being inflated away, then they tax you on your interest. So on that basis, to make it in property you have to make sure it is cash flow POSITIVE and you have some cash to show for it at the end of the financial year - otherwise with no capital gains, you are going financially backwards. My motto when I was a property investor (in NZ) was to get at least an 8% gross return, otherwise I would walk the other way.
Just read how you said "crypto valued in worthless FIAT money and yet apparently the higher the number of tokens the more "worth" and "value" it has." - I could counter that with the evil that is inflation, say your $10,000 sitting is a TD account for a year vs. buying $10,000 BTC on January 01 and seeing what it's worth December 31 ? Remember there are "break fees" with term deposits, if you want that money for any reason (except hardship in some cases) throughout that year. While if you feel uncomfortable with how your $10,000 of BTC is going during the year you could :
1. Sell some and wait on the sidelines to rebuy at a lower amount.
2. Have a % gain you want to reach in those 12 months, stick to it and when it reaches your goal, sell it.
3. Trade it (or part of) for another coin.
And with crypto, the banksters can only charge you with .... ???
ANZ once used a rather odd marketing mascot of a chubby, deadpan Kiwi donning a cheetah onesie. I was at pains to establish whether it actually had something to do with promoting a usurious financial product or was in fact a veiled reference to Shayne Elliot's fashion proclivities.
Anyway, sometimes people with humanities degrees just need to stick their neck out. Never mind the fact that economics isn't a real science, but any self-respecting central banker would surely, on some level understand the dilemma of 'Buridan's Ass' (which unfortunately, Sharon neglected to get any mileage out of in her note).
To call for another 50bps when it is patently clear that Adrian is more a 'wait and watch' type of guy seems a little bit of an attention grab (or reflects positioning of an FX book?), especially when your note moves the currency and actually reduces the probability of further hikes at the margin...
They are everywhere
https://l.facebook.com/l.php?u=https%3A%2F%2Fwww.stuff.co.nz%2Fmoney%2F…
That is one hell of a flip flop from ANZ. It makes it look like they have no idea what is happening.
They are lowering interest rates and saying they think RB will increase rates.
ANZ ignore the US inflation rates with Fed cuts likely. If RB increases, our dollar rockets and exports returns impacted.
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