BNZ economists are eyeing a longer period before the Reserve Bank raises the Official Cash Rate (OCR) from its record low 2.5%, and Deutsche Bank has joined the chorus of economists forecasting the OCR is likely to remain on hold until the second half of 2012.
This has come despite figures showing economic growth of 0.8% in the September quarter, above the median economist expectation of 0.6% GDP growth. The Reserve Bank had also forecast 0.6% growth for the quarter.
BNZ head of Research Stephen Toplis said downward revisions to growth in the December 2010 and March 2011 quarters indicated there was more spare capacity in the economy than previously thought, meaning there was not as much to cheer as the headline GDP figures indicated this morning.
December 2010 quarter GDP growth was revised from 0.6% to 0.3%, while March 2011 quarter growth was revised from 0.9% to 0.7%. Stats NZ said this was due to revised methodologies for manufacturing data.
"The increase in spare capacity won’t be the same as the downward revision to activity but it should be sufficient for the Reserve Bank to conclude that inflationary pressures are not as great as had been anticipated," Toplis said.
"Accordingly, not only will the [Reserve] Bank feel comfortable with its current view that there is no need for a cash rate hike until H2 2012 but it may even lend support for a slightly longer wait than currently forecast," he said.
Deutsche Bank economists moved their first expected hike in the OCR from June 2012 to September 2012.
Depends on EU crisis
ANZ economists also noted the revisions made to previous growth figures.
"This matters, as the level of GDP is what goes into the Reserve Bank’s assessment of the output gap, or the level of spare capacity in the economy that provides the “demand-pull” element of inflation (as opposed to cost-push, from oil prices, for example). The upshot of this is that there is no threat to the Reserve Bank’s plan to leave the OCR on hold for the foreseeable future," they said.
"We have pencilled in the first Reserve Bank rate hike for December 2012, but the timing is dependent on how the current global turmoil feeds into commodity prices and bank funding costs. The process of policy normalisation will be stop-start, reflecting our view that the global situation will not be resolved quickly, and that inflation looks to be in retreat for now."
ASB economists kept their expectation for the first OCR hike at December 2012.
"We do not expect the Q3 GDP outcome to change the RBNZ’s stance much. Manufacturing strength in Q3 is likely to prove temporary: it was driven primarily by livestock slaughter, which is likely to abate in Q4. Moreover, recent manufacturing surveys suggest core manufacturing activity began falling in the closing stages of 2011," ASB economists said.
"A bigger boost from the RWC over Q4 may temporarily offset that loss of momentum, but the RBNZ will be looking very hard for any further signs that export‐focused sectors of the economy are getting affected by slower global growth as Europe’s debt crisis rolls on," they said.
19 Comments
LOL, yes borrow so the bank can eventually own everything you have after losing that 'consumer' reliant job you have "in this environment" Good one!
NO ONE lives in a vacuum during this time in history, unless you grow food your in for a tough year, maybe a decade even.
The property hoarders ( not saying you are one) will eventually learn that if you run rough shot over those at the bottom of society then watch it come back around ten fold. When society breaksdown, the first to get a brick or molotov through the window are those deemed "greedy"
Can't be right. Floating rates were supposed to be 9% by now ( according to bank economists 9 months ago).
Maybe any OCR hike at all is a fictional entity, a mirage ... always on that horizon ....keeping us in just enough fear. Maybe 2013 until hikes, maybe 2014 .... maybe cuts , maybe OCR cuts next year ,
Can a NZ bank economist really make sense or predict future events ..... e.g. a major stock market crash, a freeze on interbank funding, an Israeli attack on Iran followed by a middle East meltdown proxied by Russia & China ... anything could happen over the next 6 months.
Still, like others am hovering around fixing portions shortly ... the next surprise may be completely counter-intuitive e.g. all banks announce a rate rise due to Euro etc unrelated to OCR. ....
I agree, Im seriously thinking of 6 months fixed right now....just as a safety thing for a few months. Just wondering if there is a neg side I havent spotted that makes such a move a bad idea.
Bank economists have no clue...it should be obvious by now they are looking backwards to guess a few months ahead....they then ignore the fundimentals which are really bad and have been for 3 or 4 years. Thinking strategically is simply outside of their reference, or they are not allowed to....I find it quite shocking that they are eternal optimists but cant justify that stance.....
regards
Good call Basel - those that think the OCR has any relevance to what will happen to floating rates do not understand what is driving the interest rate marketscurrently, and more importantly, what will increasingly so through 2012 - most will remain ignorant until too late
yes.....it is....its not going up for years IMHO.
fair? life isnt fair.....
However, good news your rate is likely to drop because we (The world) will be in a deflationary spiral....
So even at say +1 or 2% your capital/cash will buy more and the gain in purchasing power will be tax free...on the negative side any assets like houses will loose 50~75% of their value....
be careful what you wish for.
regards
same old depressionary talk... deflation, house prices 75% down (wasn't it 90% a few weeks ago?)...
in the meantime, prices are going up, not just property prices, but just about everything else - food, quality goods, services... inflation seems to be the real concern.
Dreaming again steven?.....deflation?....oh that'll be why diesel is now $1.59 in Marlborough this week but was near $1.55 a week ago...We will have inflation and recession while there is a high chance of mortgage rates rising as well.
On top you can expect the money grab councils to go for the cash...grab all they can via the rates legalised thieving....while dishing out bloated salary rises to already overpaid fatcat local bureaucrats...the chch farce is but one example.
The great commodity boom is looking very toppy....this is all there is between a failed economy farce of a country and something that totters along on the spin and BS about recovery in our time.
Meanwhile the farce in wgtn gets more ministers...28 now....who pays?...who gives a shite.
The current account news was not good...signs are things are going to get very nasty....must be time for a fat payrise for MPs et al....and for another borrowing based splurge on makework schemes on the roads etc.
Where are the 170,000 new jobs?....oh you forgot about the BS...so did Bill English.
Why are people not building new homes....something to do with govt gst theft no?
Why is the chch rebuild not going to be as big, as quick, as GDP positive?
Are more people moving to operate in the 'black market zone'...dam right there are.
Back to the money farce....savers are being screwed to save the bubbles to save the banks and save the govt...are you a happy saver? Rates on deposits are shite...the margins for banks are wide...the thieving is govt and RBNZ sanctioned.
So why be a saver?
Despite Merkel Myths that the ECB will never "print" the ECB now has an even bigger balance sheet then the Fed. This opens the door for the Fed to QE again. It has to be tit for tat in this game of currency debasement.
At the same time the Fed has increased M2 by 10% this year.
http://www.zerohedge.com/contributed/12-economic-facts-christmas-tick-tick-research-email
The last thing the bankers want to do, is make the debts harder to pay. Make it easier, lower interest rates, and increased money supply.
According to the Reserve Bank "the fundamental cause of inflation is too much money chasing too few goods" - we all have so much cash sloshing around, and there's so little electricity, council services, timber & petrol -- oh, that's why prices are going up!
Must be time to crank up the OCR to suppress all that cash driving up prices everywhere ...
"According to the RB" URL? its certainly a very simplisitic view of inflation...
Dont do a Wolly on us....
This one of the two types, pull inflation.....where wages etc ie too much money pulls up prices...the other, push is where costs rise despite ppl inability to pay.....so with Peak Oil the rising price of fuel looks inflationary...but if ppl cut back elsewhere because their wages have not risn then the net difference is very little, <2% is what is expected.....which funny thing is what we see....
Driving up prices everywhere...nope.......just eyed a Dewalt cross cut saw, old price $1340, new price $997.....food I see very little risies, matched by drops elsewhere we are still able to eat on $250 a week....maybe its just Wellington.....maybe in the sticks you are getting screwed.....
The OCR has as the banks have said disconnected from the retail rates....and the OCR if anything will go lower.....a recession/depression will do that...
regards
Steven - yes agree. Was being slightly sarcastic on that definition - hence comment about the prices of necessities which have been rising:
Rises:
Council rates
Insurance
Petrol
Trades: car maintenance etc
section/land prices
Food
Timber, Concrete, etc
Most of this list fits Buffetts definition of companies who can raise prices regardless of conditions
Falls:
Interest rates (cost of money)
Plastic stuff
Some tools
Laptops
Smartphones
TVs/electronic stuff
This is all "disposable" spending ... can be avoided more so
So depends on where a households budgets goes ...
I don't know much about other areas but around here (Kerikeri) section prices, farm and lifestyle bare land prices have collapsed. The typical house section (3,000m2, 0.75 acre) was selling for $200,000+, now heaps available for under $100k. The official stats show the average has dropped by 42% but is distorted a little by the sale of some high value coastal stuff.
It's a classic oversupply situation as every stuggling orchardist hit on the subdivision goldmine at the same time. They reckon there's 10 to 15 years supply currently on the market!
So some deflation here and I suspect general goods will fall worldwide for quite a while as countries try to trade their way to surplus. I think the biggest story for 2012 will be a collapse in the Japanese bond market and the Yen.
Merry Christmas All.
Kiwidave.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.