The Reserve Bank (RBNZ) has CUT the Official Cash Rate (OCR) to 5.25%, down from the 5.50% level it has been on for over a year.
And there's likely to be more cuts before the end of the year.
In market reaction, the Kiwi dollar dropped to US60.1 cents from US60.8c prior to the announcement. Immediate wholesale interest rate responses were fairly muted, with swap rates dropping around 2-3 basis points. Some of the big banks were quick off the mark with mortgage rate cuts in response too.
In its latest Monetary Policy Statement (MPS) the RBNZ is forecasting the OCR will have been cut at least one more time before 2024 is finished - and likely twice. More cuts are expected across 2025, with the OCR forecast to finish next year well under 4%.
In addition, the RBNZ has sharply moved down its inflation forecasts. It now expects inflation will easily move back into its targeted range in the current quarter. It sees annual inflation being 2.3% by the end of the September quarter.
The RBNZ now sees the country have another recession (as defined by two consecutive negative quarters of GDP contraction). It is forecasting that for the June quarter GDP will have shrunk by 0.5%, to be followed by a -0.2% outcome in the September quarter. If that all comes to pass it will mean we will have had negative GDP growth in six out of eight quarters.
The RBNZ's house price forecasts have also had a haircut. In May the central bank was forecasting house price growth of 2.3% for this calendar year. Now in the latest forecasts the RBNZ is expecting house price growth of just 0.1% for this year. It forecasts that in calendar year 2025 there will be a recovery, and prices will grow by 4.8%. This, however, is slightly lower than the May forecast, which was for 5.4% growth in 2025.
The darkest time
RBNZ Governor Adrian Orr said "the darkest period" was where the economy was right now.
Given the above, perhaps not surprisingly the RBNZ has also increased its pick of peak unemployment. Previously it expected the rate to reach 5.1%. Now it sees unemployment peaking at 5.4% in March next year. As of June the actual rate of unemployment was 4.6%.
The latest forecasts from the RBNZ are a big about-turn by the central bank.
The previous set of forecasts issued by the RBNZ were in the extremely 'hawkish' MPS issued in May. These forecasts had actually given a 60% chance of another HIKE in the OCR up from 5.5% to 5.75%, while cuts were not forecast till the second half of 2025. In addition the annual CPI inflation rate had not been forecast to get back into the targeted 1% to 3% range till the final quarter of this year.
Consensus reached
In the record of the meeting of the RBNZ's Monetary Policy Committee, the RBNZ said the Committee observed that the balance of risks has progressively shifted since the May Monetary Policy Statement.
"With a broad range of indicators suggesting the economy is contracting faster than anticipated, the downside risks to output and employment that were highlighted in July have become more apparent. Members were also concerned about avoiding unnecessary near-term instability in output and employment given the evolution of recent indicators," the RBNZ said.
The committee members noted that monetary policy "will need to remain restrictive for some time" to ensure that domestic inflationary pressures continue to dissipate. The RBNZ says committee members reached a consensus for the cut.
"The pace of further easing will thus be conditional on the Committee’s confidence that pricing behaviour is continuing to adapt to a low-inflation environment and that inflation expectations remain anchored around the 2% target."
Ahead of Wednesday's announcements three of the big five banks, namely BNZ, ASB and Kiwibank, had been calling for an immediate cut.
Also ahead of the announcements, financial markets had been pricing in a two-thirds chance of a cut on Wednesday, with two cuts priced in by October and more than three cuts by the end of 2024.
This is the statement from the Reserve Bank:
New Zealand’s annual consumer price inflation is returning to within the Monetary Policy Committee’s 1 to 3 percent target band. Surveyed inflation expectations, firms’ pricing behaviour, headline inflation, and a variety of core inflation measures are moving consistent with low and stable inflation.
Economic growth remains below trend and inflation is declining across advanced economies. Some central banks have begun reducing policy interest rates. Imported inflation into New Zealand has declined to be more consistent with pre-pandemic levels.
Services inflation remains elevated but is also expected to continue to decline, both at home and abroad, in line with increased spare economic capacity. Consumer price inflation in New Zealand is expected to remain near the target mid-point over the foreseeable future.
The Committee agreed to ease the level of monetary policy restraint by reducing the OCR to 5.25 percent. The pace of further easing will depend on the Committee’s confidence that pricing behaviour remain consistent with a low inflation environment, and that inflation expectations are anchored around the 2 percent target.
Summary of Monetary Policy Committee meeting:
The Monetary Policy Committee discussed recent economic and financial developments and their implications for monetary policy in New Zealand.
The Committee noted that the weakening in domestic economic activity observed in the July Monetary Policy Review has become more pronounced and broad-based. Headline inflation has declined, and business inflation expectations have returned to around 2 percent at medium- and longer-term horizons. Committee members agreed that monetary policy restraint can now begin to ease. The pace of loosening will depend on the extent to which price-setting behaviour continues to adapt to lower inflation and inflation expectations remain well anchored to the target mid-point.
Global growth remains below trend across advanced economies. Growth in China has been softer than expected, due to a depressed property market and weak consumer demand. While US growth has been firm, some indicators show emerging weakness. Recent volatility in global asset markets reflects nervousness about US economic prospects, geopolitical risks, and the outlook for international trade policy.
The Committee noted that global inflation has continued to decline but remains elevated in some parts of the services sector in many countries. The Committee noted that some central banks have recently begun cutting policy interest rates, reflecting lower core inflation, weaker activity, and softer labour markets. In this respect, New Zealand’s economic activity and near-term inflation indicators now resemble those in countries in which central banks have started cutting policy rates.
While official economic statistics have evolved in line with expectations in the May Monetary Policy Statement, a broad range of high-frequency indicators point to a material weakening in domestic economic activity in recent months. These include various survey measures of business activity, electronic card transactions, vehicle traffic, house sales, filled jobs, and job vacancies. These indicators collectively provide a consistent signal that the economy contracted in recent months. The output gap is now assessed to be more negative than was assumed in the May Monetary Policy Statement, indicating increased spare capacity.
The Committee discussed possible reasons for the current economic weakness. Alongside restrictive monetary policy, an earlier or larger impact of tighter fiscal policy could be constraining domestic demand. Falling net migration may also be playing a role. The Committee noted that measurement challenges, including methodological changes by Statistics New Zealand in the national accounts, are creating additional uncertainty around the composition and likely persistence of this weakness.
The Committee discussed recent developments in the labour market. The June quarter data suggest that employment growth has slowed, with declines in private sector jobs, hours worked, and wage growth. The impact of government spending restraint and public sector job losses are expected to materialise in further weakening in employment growth over coming quarters.
In discussing fiscal policy, the Committee noted that government expenditure is declining as a share of the economy, with contractionary impacts already felt and expected to continue. However, whether tax cuts will boost consumption is more uncertain. While tax cuts could stimulate demand, it is also possible that households might be more cautious about spending in the current economic environment.
The Committee discussed global and domestic financial conditions. Weaker economic data globally have prompted markets to price in lower policy rates for the rest of the year, pushing down sovereign yields in most advanced economies. While domestic financial conditions remain restrictive, they have loosened over recent months. Market expectations for the forward path of the Official Cash Rate (OCR) have contributed to lower wholesale and borrowing rates, along with some depreciation in the nominal exchange rate. The Committee also noted that more households are choosing shorter pricing tenors, meaning that further reductions in mortgage interest rates will flow through to lower household interest costs relatively quickly.
The Committee noted that while credit remains available, demand for credit is weak. This provides a further signal of soft economic activity. High interest rates, sluggish housing market activity and low investment intentions have curbed demand for credit. The agriculture sector has also paid down debt, curbing credit demand.
The Committee considered risks to the financial system. With elevated debt servicing costs and weak economic conditions, some households and businesses are experiencing financial stress. The Committee noted that banks had tightened lending standards in recent years, increased loan loss provisions and were well capitalised, making the financial system more resilient. Non-performing loans have increased from a year ago but remain relatively low by historical standards, and banks are well positioned to support borrowers. In this environment, the Committee agreed that there is no material trade-off between meeting its inflation objectives and maintaining financial system stability.
The Committee discussed inflation developments. Inflation fell considerably in the June quarter, due mostly to lower tradables inflation, while domestic inflation declined in line with expectations. Members were encouraged that surveyed business inflation expectations have returned to around 2 percent at medium- and longer-term horizons. All measures of core inflation have fallen and the components of CPI that are sensitive to monetary policy have declined further. Together with the weaker high-frequency indicators of economic activity, these developments provide the Committee with more confidence that headline inflation is returning to the target band in the September 2024 quarter.
The Committee discussed upside risks to the inflation outlook. The persistence of domestic inflation and the pace at which price-setting behaviour will adjust to a low-inflation environment remain uncertain. Members noted the possibility that firms might adjust prices asymmetrically – changing prices quickly when inflation was high and rising, but more slowly when inflation is falling. The Committee noted uncertainty around the outlook for potential output, given weak productivity growth. If potential output grows more slowly than currently assumed, there will be less spare capacity and less downward pressure on domestic inflation.
Furthermore, ongoing geopolitical and trade tensions and the global reshoring of manufacturing activities could lead to higher import prices for New Zealand. Members also discussed the significant rise in global shipping costs, caused by ongoing disruptions to Red Sea and Panama Canal freight routes. Given New Zealand’s relatively limited trade through these routes, the effect on shipping costs for New Zealand imports are assumed to be more moderate, and feed through to import prices with a lag.
The Committee discussed downside risks to the outlook. Members agreed that a weaker global economy, particularly in China, could dampen demand for New Zealand exports and reduce exporters’ earnings. More subdued global demand could also lead to lower import prices.
Members also noted that domestic inflation could fall more quickly than projected if wage- and price-setting behaviour adjusts more rapidly to a low inflation environment. For example, headline inflation will fall sustainably back to the target mid-point more quickly if price and wage setters adjust more to expected future inflation rather than to past inflation.
The Committee discussed the reasons why inflation has been outside of the target range and the expected timeframe for inflation to return to the 2 percent target mid-point. Members noted the lingering effects on inflation from demand effects of monetary and fiscal stimulus, pandemic-related disruptions to supply, increased commodity prices and shipping costs from geopolitical tension, severe weather impacts on local food prices, and low productivity.
Conditional on the information available, the Committee felt that the OCR track in the projection reflected its view on the policy strategy that would best deliver on its remit. The Committee noted that monetary policy settings are consistent with annual headline CPI inflation remaining within the target band near the 2 percent mid-point over the forecast horizon.
The Committee observed that the balance of risks has progressively shifted since the May Monetary Policy Statement. With a broad range of indicators suggesting the economy is contracting faster than anticipated, the downside risks to output and employment that were highlighted in July have become more apparent. Members were also concerned about avoiding unnecessary near-term instability in output and employment given the evolution of recent indicators.
In discussing the appropriate stance of monetary policy, the Committee noted that recent indicators give confidence that inflation will return sustainably to target within a reasonable time frame. With headline CPI inflation expected to return to the target band in the September quarter and growing excess capacity expected to support a continued decline in domestic inflation, the Committee agreed there was scope to temper the extent of monetary policy restraint.
However, members noted that monetary policy will need to remain restrictive for some time to ensure that domestic inflationary pressures continue to dissipate. The pace of further easing will thus be conditional on the Committee’s confidence that pricing behaviour is continuing to adapt to a low-inflation environment and that inflation expectations remain anchored around the 2 percent target. On Wednesday August 14, the Committee reached a consensus to reduce the Official Cash Rate by 25 basis points to 5.25 percent.
289 Comments
Well the quality of public servants will drop even further. WFH is offered by most progressive and desirable workplaces.
Family member in AUS does 3 days in the Office, less if she wants. Was recently in NZ for 3 weeks to see us and WFH. And yes she worked alright, impressively enough to avoid a recent big round or redundancies. Aus corporate, not PS.
Agreed, WFH options opens up the job market to a greater audience due to the lifestyle it affords. I work alongside many women with young kids who are able to balance their days with pickups/dropoffs etc and they work harder than many others that are in the office more often than not by choice.
Yeah nah
by Zwifter | 12th Aug 24, 10:31am
Easier to predict based on the person than what the decision should be. The decision should be to cut rates, that's pretty obvious its only the RBNZ standing in the way. If they don't officially cut rates, banks are doing it anyway so more cuts coming before September. The real question is why are we paying these people so much money when they are not really in control of anything ?
by TronMVP | 12th Aug 24, 4:31pm
@RP
I think Zwifter was saying it's a 100% sure thing that the OCR won't drop on Wednesday, as it is Adrian Orr in charge
You forgot the mammoth in the room - high energy prices seen over the last couple of weeks will push up business costs in Q3 and perhaps Q4.
Side note: Market participants are going to pay millions to Methanex and NZAS to literally do nothing and idle their facilities so as to divert the gas and electricity to the rest of the country.
That's a few billion dollars' worth of export income lost.
Honestly, I was mentally preparing a "I was wrong post" for my call made 14 months ago that the first OCR cut would occur in August 2024. Even though I stood by my call, after the May MPS, when RBNZ suggested a possible rise in the OCR, deep down I had doubts that Orr would be able to make such an about face.
The range is 1-3%, we shouldn't be avoiding the bottom half of that range. As an armchair economist there looks a far higher risk of us ending up out of that range than with no cut. Especially given higher electricity and gas prices will start to flow through the economy next year.
This is my thinking too. The risk of us ending up below 1% any time soon has got to be near zero considering the baked in non-tradable increases and demographic and infrastructure pressures. Whereas there are multiple plausible developments that could send inflation well over 3% again.
Canada, UK, Switzerland, Sweden and Europe all cut rates AFTER inflation was below 3% and within target band. US still waiting. But here we are with inflation still at 3.3% and its "lets cut rates NOW!" Totally out of step with the rest of the world.
https://www.reuters.com/business/finance/big-central-banks-are-starting…
Do you see Norway or Australia cutting rates? Nope, not until 2025 according to their central banks. Because inflation is still not in target range, or has only just moved in to the target range and they need more time. But not NZ, no, we're ready to embrace the 1970's again. Get out your flares and disco balls.
🧂🧂
It won’t do bugger all for real estate, but it will maybe give a change in sentiment and some relief for an economy that needs it.
KW…so all those countries also work off such outdated data…we are within the target band and that will be confirmed when the next print drops.
I am really surprised by this cut in August, as it shows quite clearly that the recent RBNZ's own forecast of the interest rates trajectory was a complete joke, and as such it seriously calls in question Orr's credibility.
I was fully expecting a total of 50 bps points cut before end of the year, but not in August - rather in October/November.
On the more positive side, it is good that the RBNZ is at least finally recognising the speed with which the NZ economy is deteriorating and taking action accordingly.
The future easing of monetary conditions should be done slowly and carefully though, otherwise the NZ$ will drop like a stone and we will have again an inflation problem with the consequent need for a re-tightening of monetary condition - something that the current NZ economy just can't afford.
A big cut - 0.5% or above - is a clear indication they're not reading the situation correctly.
They have 6 times a year to make changes. Turning oil tankers needs small adjustments on the wheel way before you even get close to things that will sink you.
The only time such cuts should be necessary are for sudden, and serious, black swan events ... (and IMNSHO covid didn't qualify, thus the OCR should never had gone much below the neutral rate of 2.5%. Covid was an issue for government and the RBNZ should have stood back.)
Having only jumped into the property market in the last two weeks, you can now call me Chubby "The Oracle" Peterson. The most unproductive and insipid asset class in history which all of you idiots piled your hard earned overtaxed money.
As a long suffering wise man once said, unluggy uce.
Interesting, not all debt is bad. My parents thought like you about being a debt slave "Don't ever borrow any money for anything" they told me. My parents were very nice people, but narrow minded, they rented for their whole life and they struggled financially for their whole life. If it wasn't for my wife who's a much more open minded about borrowing, I would still be a struggling, renting person.
Only bought my first ever new car last year because I could and it was time to enjoy driving something new instead of all my other 20 year old plus cars. If you enjoy driving then hell yes why not and its probably the last chance to buy a new performance ICE car with a 6 speed manual transmission.
Borrowing for property was fine until the Govt had a bright idea and introduced the OCR in the 90’s. Now it feels like mortgage debt is just a variable tax payment, turning home-owners into cash cows to stabilise the economy.
And of course the higher the debt, the more control Govt has over society. No wonder they have no real desire to reduce house prices.
”Neither a borrower nor a lender be”
Makes sense, but should have been bigger. Post September likely we will be within inflation range and the OCR will be 2-3% above inflation.
Lets just hope Orr hasn't taken the economy down.
This will result in a lower $$, but that's OK in my books. Exporters get paid more, oil prices go up a bit so we try and use less and/or head further toward electrification. Boo hoo.
2C diesel engine by toyota in late 80’s to early 90’s corolla and corona’s. Cant get then easy now due to age and the Saudis have been paying megabucks for the engines alone as they recognised the reliability. More money to scrap one now which gets sold off to saudi than it is to fix.
'Members also noted that domestic inflation could fall more quickly than projected if wage- and price-setting behaviour adjusts more rapidly to a low inflation environment. For example, headline inflation will fall sustainably back to the target mid-point more quickly if price and wage setters adjust more to expected future inflation rather than to past inflation'
I am not sure where they have been the last weeks but they are clearly unaware of our energy situation!
The Members should have also have 'noted' that dropping working capital costs to businesses - both large and single person businesses - could also cause inflation to fall more quickly than projected as this lowers costs to those businesses.
Did they though? Nope.
The failures of their monetary policy must never be mentioned.
If the $ craps the bed, then I guess they can spend it on filling the car up and paying more for the kids' imported Christmas presents. $2.5k doesn't touch the sides these days. I suppose the main hope of the heavily indebted is that any downwards OCR movement reignites the fires of the ponzi.
Great news for those who have a lot of debt, including farm overdrafts. In saying that home loan rates might not change much if at all as the Banks expected this and reduced their rates ahead of today. Banks are not your friend. They give as little as possible and always win.
"Markets are nuking the NZD."
Hasn't so far. Still above recent lows.
Currently .6034 with recent lows of ~0.5880 that lasted 4-5 days.
It will continue to re-test those lows in the coming months - and not because of the OCR - but because the NZ economy will continue to contract and NZ will continue to borrow.
Still above the lows when the major economic news came out in late July. (Pub-economists read far too much into how FX markets respond to central bank actions.)
If one subscribes to the view that a country's currency is like a 'share' or 'stock' in that country, (I largely do), then the NZD will break through those July lows as the economy continues to contract and the suffering mounts. Unless there is a significant improvement in our BoP, particularly our export receipts, it's going to be one way traffic.
Fark's sake Adrian, now I'm going to have all the annoying agents from the various open homes I've visited over the past month calling me up telling me to get in quick because the heat will be returning to the market.
I will personally seek vengeance if this occurs, or if an even worse scenario materialises in which I'm forced to endure the in laws talking up their leveraged portfolio again (I know it's bleeding cash each month).
A friend of me said to me in the office today, "What do you think they will do?"
"Cut", I said
"Why?' he said.
"Because they shouldn't" I answered.
And really that sums up the reserve bank. I really can't think of a single decision they have got right. If there was ever a time for keeping the powder dry it is now. With our current account deficit, the hit on the currency will be immediately inflationary. Never mind what happens in Ukraine and the middle east.
Remember the funding for lending program, also knowns as the big 'Ponzi Bubble Blow'. Inflation created directly by the RBNZ
"With our current account deficit, the hit on the currency will be immediately inflationary."
Hasn't so far. Still above recent lows.
Currently .6034 with recent lows of ~0.5880 that lasted 4-5 days.
It will continue to re-test those lows in the coming months - and not because of the OCR - but because the NZ economy will continue to contract and NZ will continue to borrow.
Absolutely nothing they've said today that they couldn't have said for the last two - or even three - MPSs.
Remembering of course that the May MPS - where they said rates may rise and the first cuts wouldn't be until Q3 next year - was utter b.s. Geez, they need to apologize to borrowers that fixed longer based on their nonsense. And I'd support any borrower taking legal action against them for that May release.
They are just playing the market, and the market plays a similar game back. Had they said in May "we intend to cut in August", then the market prices that into fixed rates that very day and the RBNZ has effectively cut when they didn't want to.
I think he played a pretty good hand really, he had almost all commentators here fooled into thinking there would be no cut today.
"In addition, the RBNZ has sharply moved down its inflation forecasts. It now expects that inflation will easily move back into its targeted range in the current quarter. It sees annual inflation being 2.3% by the end of the September quarter." - this was quite obvious a long time ago, there is a big 1.8% that falls out of the annual this quarter.
IMO this shows they have bowed into massive pressure from banks and politics. Inflation is not in the required band and they failed and let it get completely out of control once. I would have had more respect if they had kept it stable. Banks want to sell mortgages and get house prices rising again, so it was no surprise that they were strongly calling for the rates to be dropped.
Solely focusing on the vested interests of banks/politicians is stupid. They've caused the damage they wanted and this is very evident by many metrics, including the massive worrying net outflows.. Holding for any longer and accounting for lag risks massively overshooting the mark.
This was the right call. They've done enough as noted in the unanimous decision to cut.
"annual inflation falling to just 2.3%"
Which is still CPI rising, ON TOP OF what it did last years, ON TOP OF what it did the year before. Accumulated CPI rises are way beyond the 3-year target of the RBNZ.
But on the bright side, at least I may not have to buy my step-daughter's property to bail her out now. I'll leave that to some other sap, sorry, investor.
A perspective perhaps not mentioned yet. Some of those I have talked to the last few years (retired, mortgage free and with av $500k cash) may now start cutting their spending as the return on their TDs drop.
They increase their spending in relation to interest rate rising as they got more return in their low risk investments. It possible that we now see a reduced spend from them in the economy as rates fall.
Sure this will free up some cash for those with debt (if they keep their jobs or don’t get reduced hours as recession bites) but it doesn’t mean an improvement necessarily In conditions for your business/household.
If the post tax return on TDs approaches 0–% again, many retirees may close up their wallets as their income drops (super + TD income) - they don’t own rentals and they don’t want to risk the sharemarket so low rates don’t benefit them much if f at all.
But hopefully some relief for those with mortgages that have been battling away of late.
Or get your money offshore, to Australia, as fast as possible before the NZ$ devalues even more. RBA said no way are they cutting rates.
https://www.theguardian.com/australia-news/commentisfree/article/2024/a…
Quite funny how many kiwis are heading to Australia as things are ostensibly better, but the more you read the more you see the same problems or worse across the ditch.
Sydney becoming a city of no grandkids. Housing insane. Brisbane a big hot dump on a dirty river. Melbourne a big Wellington whose idea of cool is some drug addled graffit “lanes” with some wanker selling overpriced artisan coffee. And the rest just a big empty dry space.
Perth may as well be Timbuktu.
can someone fill me In what the advantages are?
Don't believe figures from Immigration NZ as they like economists predominantly get it wrong. Remeber back when they said 160k visa holders would get that one off visa 210k it turned out. For departures in May this year they said we lost so many kiwis turned out we actually gained 300 so pinch of salt any time a govt dept talks figures
The number of births doesnt lie - European births in the year to March 2024 have dropped by 14% in just one year. Where have all those babies disappeared to? (Cant blame the pandemic either, Maori/Pacifica births are only down 4%, and Asian births are up 12%). There is a huge exodus of people underway and it will reverberate for generations.
Melbourne is in a deep depression, similar to NZ. But Brisbane is rocking. Go out in the city on a Monday, Tuesday night and the restaurants and bars are packed. Tons of people walking around the CBD shopping strip. Same on the Gold Coast. Same in Townsville (where I currently am). Its like a different world over here - the old world, the way things used to be before people like Jacinda Ardern and Dan Andrews completely stuffed everything.
I'm here, I'm loving it. And the weather is amazing (currently sunny and 26 degrees).
The body corporate fees on a luxury waterfront apartment on the Gold Coast is now the same as what I pay in rates to the Christchurch Council. So it probably wont be too long before I stop funding useless cycle lanes and 20 kmph speed humps on suburban streets. And I can drive around the Australian streets at 60 kmph and be astounded at how all the Australians still manage to survive!
Good to know and glad it’s working out for you. Frank has lived all over the world, life of a longshoreman.
Brisbane was undoubtedly one of the most dull places I’ve been. But that was when I wore a younger man’s clothes.
Different strokes for different folks. I hope we all find a place that suits
Still above the lows hit late July when the economic mess we're in because crystal clear.
It will continue to re-test those lows in the coming months - and not because of the OCR - but because the NZ economy will continue to contract and NZ will continue to borrow.
Agree with that. But if 0.5880 does break this time, 0.5714 looks like the next support, then something with a 0.50 to start with. Besides, Adrian has just upped the amount of ammo he has in his intervention pop-gun. So that's possibly all just improbable charting stuff...(we hope!)
I would suggest you treat changes in the NZD due to OCR changes for the lagging indicator that they are.
Or put another way, the OCR is falling because any investment in New Zealand's contracting economy - via the NZD - is a perilous exercise.
Or put another way still, the NZD tanks after an OCR cut because the OCR is the last and final confirmation of just how bad things are.
Shipping costs have quadripled in the last 9 months.
We're about to go through an energy crisis.
The Middle East/Ukraine are about to/popping off which will spike oil prices.
We'll see if we get anymore this year depending on how these pan out but I think the RBNZ have overcooked it in the other direction again because they don't have a clue.
OK. I've analysed the MPS data release and I'm awake now (and angry).
First point: Wiggling interest rates down by 25 pts will help businesses a bit. That's $500m of debt servicing cost relief. You might even see a bit of that relief come through to lower prices, but I suspect that balance sheet repair will be the main focus. As it will be when rates come down again (and again) over the next year as RBNZ chase the economy down the swanny.
Second point: The real economy in NZ gets crushed by higher interest rates with a 12 - 24 month lag. Lower rates will release disposable income - but, again, this will take ages because mortgagors are on fixed rates, banks pass on changes painfully slowly, and unavoidable prices are still going up (hello rates). It is also REALLY important to note that economies do not recover without fiscal support, and the Govt in their infinite, ideological wiz-dumb are cutting deficit spending from around 5.3% of GDP in the year to June 2024 ($21bn) to 2.1% this Govt fiscal year ($8bn). This reduction will be really contractionary! A $13bn reduction in stimulus will remove a similar amount of stimulus as a 250pt rate hike.
Third point. Oh my bloody god! Look how much the RBNZ economic forecasts have changed in a few months. They now more closely reflect the data and trends that have been obvious to anyone with an understanding of macro for a year. For example, RBNZ now see annual gdp growth being negative for a year or so. A few months ago they were forecasting a tiny dip into negative in June 24 and then onwards and upwards (the fools). They're also now forecasting a year of negative employment growth. how about an extra 20,000 people unemployed? And, so on.
Orr neither got us to 7% nor helped us get back to 3% (or whatever). The global price level has adjusted, and our price level has followed. Why? Because a third of our consumption by value is imported, and export prices determine the price of stuff we make domestically and consume here (eg cheese). Take a look at this graph. What do you see?
"For example, RBNZ now see annual gdp growth being negative for a year or so. A few months ago they were forecasting a tiny dip into negative in June 24 and then onwards and upwards (the fools). "
Yup.
And yet the voters on this site believe the NZD tanks because of OCR cuts? Nothing to do with the fact that the RBNZ is the last to know they're screwing the pooch.
Worst. Central. Bank. Ever. (WCBE)
I reckon they were pissed of with having to exclusively carry the can for the economy tanking. Now it's on the coalition as they have cut as everyone was asking for. Now if things don't pick up the focus will come on the coalition. There is only so long they will be able to blame Labour and RBNZ. Fun times.
I will not but the public will. I think broader structural forces are more responsible for how the economy does than any given administration. I think administration's can nudge the economy more or less in the right or wrong direction but the major structural forces determine the overall positive or negative outcome.
Think of it like curling, structural forces throw the rock and each administration sweeps furiously to try to bring it towards themselves.
Although many are clutching at the straw of (future) reduced mortgage payments and expect a boost to discretionary spend and borrowing, this is an admission that things are not good and the only, repeat only option the RBNZ has is to reduce the cost to the economy of 'rent'....that is not a great place to be.
Yep somewhat agree , it is an admission and likely the RB will tread very carefully . Banks will be happy with todays announcement but should also be very wary of how far they push their luck with the RB . Times have changed and likely the RB is ready to spin on a dime if they have too. I view this drop as a goodwill gesture and those that bite the hand should be very careful...The RB certainly has solid expectations.
242 comments in 5 hours. A good indication of the incredible interest in today’s announcement and the financial pain out there in NZ homes and businesses. He spoke of the economy contracting. Why not make an exception to the rule and do it the minute he could see the economy was in deep trouble. The average New Zealander does not have a lot of income to come and go on.
Likely the FED rate limiting what can be done... todays drop is not entirely outside of the realm of the current Fed rate (5.25-5.50) . Those in RE expecting an instant rebound and return to 'Rockstar' will be disappointed there is global recognition that prices are still in the unaffordable zone and in need of downward pressure .
Tony Alexander says house prices will be rising before the end of the year.
https://www.oneroof.co.nz/news/finance/tony-alexander-the-reserve-banks…
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