The Reserve Bank will first raise the Official Cash Rate in March 2012 due to volatility on global financial markets, despite the improving economic data flow out of New Zealand, Goldman Sachs economist Philip Borkin says.
In a weekly update, Borkin said intensified turbulence on global markets had made him push his pick from September 15 - just two weeks away - back six months for the Reserve Bank's first move in raising the OCR from its 'quake insurance' footing of 2.5%.
Borkin's pick is further out than the retail bank economists, who are picking the first rise in the OCR will be in December, while NZIER economist Shamubeel Eaqub said this week he expected the first hike in June 2012.
Whatever the pick, the trend from economists is clear - that the OCR is expected to stay lower for longer than they thought following the Reserve Bank's indication in July that March's 50 basis point 'insurance cut' in the OCR was unlikely to remain in place "much longer".
This had economists scrambling to push their first-hike picks from December to September 15.
However the caveats for the Reserve Bank's stance were that the domestic situation much continue to show signs of improvement - something economists say is happening - and the much bigger statement that global financial risks would have to recede in order for the central bank to be comfortable it could hike rates.
But the downgrading of the US government's credit rating by Standard & Poor's, and renewed concerns about the Eurozone since the July statement, have had economists pushing their picks back again to December at the earliest.
11 Comments
Maybe we'll know more in the next few months....europe is looking dire....I cant see it will not explode and soon....but then I sold my shares a year ago last June excepting Greece to be the last straw....so, so much for picking the best time to sell....
I think its most likely we will see a cut....because I expect a recession/depression is very close....but if this zombie like state carries on for another year the OCR might start to climb, then dive.....i think its when not if....
I wonder about the SOE sell down.....if like me you expect a serious share collapse then selling the shares now actually makes sense.......a year or 2 from now they could be worth a lot less......so while I dont like the idea of selling the SOE shares the thought of stiffing foreign investors isnt losing me sleep....I just wish we'd sell 100% of Air NZ....thats a lead weight around our necks.
regards
Goldmans are probably right . We cannot have the Kiwi$ appreciate any more than it is doing without some serious disruptions to the productive sector of the economy .
Notwithstanding his mandate, Bollard will be forced to keep rates low to avoid the currency appreciating.
If anything , he should reduce rates in the short term to weaken the Kiwi
Project out to December 2011 in NZ:
Consumer spending flat to declining despite Xmas, House prices flat to declining in many regions, wages flat, cost of living for households increasing, small business/retailers hitting the wall, Global shudders in Euroland & USA - and the solution? - Hike the OCR! - yep, and watch house buyers decline further, house prices decline, and house-holders shut their wallet tighter.....
Economic conditions in NZ are sluggish to say the least with the cost of the basic necessities of life outstripping wage growth. New bank lending crtieria has all but halted credit growth and our dollar is very strong against other major currencies in the world at present giving exporters and the productive sector real problems.
Bollard will not lift OCR for some time. Speculation by bankers and economists is way off the mark and I wonder some times how much their comments on this issue are designed to spook the public into fixed term mortgages or for some other purpose?
Economic conditions in NZ are sluggish to say the least with the cost of the basic necessities of life outstripping wage growth. New bank lending crtieria has all but halted credit growth and our dollar is very strong against other major currencies in the world at present giving exporters and the productive sector real problems.
Bollard will not lift OCR for some time. Speculation by bankers and economists is way off the mark and I wonder some times how much their comments on this issue are designed to spook the public into fixed term mortgages or for some other purpose?
lbcullen: Banks make more from floating mortgages than they do from fixed as the spread is bigger between the short term lending rate (which floating rates are priced off) than the 2 and 3 year swap rate (which fixed terms are priced off). So no - their motivation is not to 'spook' investors into fixing.
I think that bank economists are over-optimistic because they are modelling this recession-rebound off all the others in the last 30 years, which have actually had a strong rebound. But this time *is* actually different, for the first time in 30 years we are in a deleveraging environment with a reluctance to increase lending by the general public.
Rates will follow what the USA does, guarantee it - if they are holding rates low for the next 2 years then so will we - our central bank governers do not dare to be too different.
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