By Bernard Hickey
The Reserve Bank has held the Official Cash Rate at 2.0%, but has repeated its view that "further policy easing will be required."
The decision to hold the OCR and signal further monetary policy easing was expected by all economists, with the only doubt over whether there will be one or two more OCR cuts, with the first one expected with the Reserve Bank's next full Monetary Policy Statement on November 10.
The Reserve Bank's decision was an 'in-between' one wedged between full Monetary Policy Statements and therefore did not include a Reserve Bank forecast track for the 90 day bill rate, which is seen as a proxy for the OCR. The Reserve Bank's August 11 MPS included a forecast implying one or two more cuts in the OCR to around 1.65%, and that view was reaffirmed in a speech written by Graeme Wheeler on August 23.
The Reserve Bank also repeated in its seven paragraph statement that the New Zealand dollar was too high and was generating deflationary pressures. In response, the New Zealand dollar rose slightly and remained near one month highs of 73.5 USc, having risen 80 basis points earlier in the morning after the US Federal Reserve held US interest rates.
Reserve Bank Governor Graeme Wheeler also said he was seeing initial signs that its new Loan to Value Ratio (LVR) controls on landlords announced in mid-July, along with tighter lending criteria and a lack of pass-through of previous OCR cuts by banks, was moderating the housing market.
Wheeler began the statement by pointing to below-trend global growth despite unprecedented monetary stimulus.
"Significant surplus capacity remains across many economies and, along with low commodity prices, is suppressing global inflation," Wheeler said, pointing to volatility in global markets in recent weeks and an uncertain outlook for global growth and commodity prices, along with political uncertainty.
"Weak global conditions and low interest rates relative to New Zealand are placing upward pressure on the New Zealand dollar exchange rate," Wheeler said.
"The trade-weighted exchange rate is higher than assumed in the August Statement. Although this may partly reflect improved export prices, the high exchange rate continues to place pressure on the export and import-competing sectors and, together with low global inflation, is causing negative inflation in the tradables sector," he said.
"A decline in the exchange rate is needed."
'NZ growth in line with forecasts'
Wheeler said June quarter GDP figures were consistent with the bank's expectations and local growth was being supported by strong net immigration, construction activity, tourism, and accommodative monetary policy.
"While dairy prices have firmed since early August, the outlook for the full season remains very uncertain. High net immigration is supporting strong growth in labour supply and limiting wage pressure," he said.
'Moderating influence on housing'
Wheeler said house price inflation remained excessive and was posing concerns for financial stability.
"There are indications that recent macro-prudential measures and tighter credit conditions in recent weeks are having a moderating influence," he added.
'Inflation to rise from below target'
Wheeler said headline inflation was being held below the bank's 1-3% target band by continuing deflation in tradables inflation, which is related to prices set on international markets. Annual CPI inflation in the June quarter was 0.4%.
"Annual CPI inflation is expected to weaken in the September quarter, reflecting lower fuel prices and cuts in ACC levies," he said.
"Annual inflation is expected to rise from the December quarter, reflecting the policy stimulus to date, the strength of the domestic economy, reduced drag from tradables inflation, and rising non-tradables inflation. Although long-term inflation expectations are well-anchored at 2 percent, the sustained weakness in headline inflation risks further declines in inflation expectations."
Wheeler said monetary policy would continue to be accommodative.
"Our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range. We will continue to watch closely the emerging economic data," he said.
Economist reaction
Economists said the decision was largely as expected.
First NZ economist Chris Green said he saw two more OCR cuts, with one each in November and February.
"Despite an expectation that the GDP growth rate is likely to remain above trend over the year ahead, we assess that concerns about the inflation outlook and the risks of inflation expectations potentially embedding lower will prompt the RBNZ to undertake an additional rate cut, resulting in a trough in the OCR at the 1.50% level," Green said.
Infometrics Senior Economist Benje Patterson said the Reserve Bank had left some mixed messages with its statement.
"On one hand, the Bank is saying it is fundamentally concerned with low headline inflation and is going to cut the OCR, but then it has failed to act and is sitting on the fence for now," Patterson said.
"This sort of mixed message isn’t helpful and is hardly going to help the Bank’s cause for maintaining credibility among market participants. The crux of the issue is that the Bank has got to a point where it no longer seems to take OCR announcements seriously and simply treats them as fillers between Monetary Policy Statements," he said.
"This trend has to stop. Either treat all opportunities to review the OCR on an equal footing, or the Bank may as well move to a system of only having four reviews per year that coincide with Monetary Policy Statements. This sort of claim might seem dramatic, but given that central banks derive much of their power from maintaining credibility, it seems silly to risk trust, which has taken years to build up, by following such an absurd strategy."
(Updated with more detail and reaction)
82 Comments
Yes Graeme ; it's for the best if you keep a little of the magic white powder up your sleeve , just in case the property addicts begin to come down from their highs ...
... then , give them another snort of the good stuff , to keep them up ... ... higher than Lucy in the Sky with Diamonds .... up up and away in our beautiful property dream ....
Forget shipping containers , and government affordable housing schemes or motel units ... ... this Ponzi bubble is big enough to accommodate all of us , and a few rich investors from off-shore too ....
... far out , man !
Our next RBNZ Governor needs to be someone that isn't a hippy.
http://imgc.allpostersimages.com/images/P-488-488-90/15/1555/DS9DD00Z/p…
The pendulum is beginning to change direction.
http://www.telegraph.co.uk/business/2016/09/21/un-fears-third-leg-of-th…
Really, this stuff is so simple. If you want inflation then first you need full employment. The way to get full employment is by spending more and taxing less, ie fiscal policy. Running a budget deficit puts money in peoples' pockets which they can then spend. Full employment was the government mantra for all parties and all places before 1980. If you keep running a budget deficit after you have have full employment you get inflation, hence the problems of the 1970s; the politicians were unable to take away the puch bowl at the appropropriate time.
Eventually the idea of inflation targeting central banks was introduced and they proved effective at bringing down inflation by putting up interest rates and creating unemployment. Unfortunately they then tried to create employment by reducing interest rates which caused asset price inflation and debt bubbles not wage inflation. Duh.
Why are they so slow to figure this out? Very Bright Plonkers at the helm?
All central bankers are operating in the realm of fantasy. They have no idea about practically implementing effective changes. This is why academics should not be put in charge of anything important there is a distinction between all theories and what works. The balance between education and understanding is important. Using wishful thinking isn't going to help.
they are all trying to pay off debt with funny money and low to zero (or negative rates) and in creating this environment, have exploded the level of debt worldwide - to a point they cannot lift rates to market levels anymore without creating an economic tsunami that will wipe out many people and businesses. You call it fantasy dictator, I call it lunacy
I agree it's simple. You can't have zirp without massive distortions and bubbles. If petrol was free would that distort prices? Of course it would. In 1929 the stock market crashed because it was driven up by debt. It's not hard to see that a 30% drop in property globally would wipe out a lot of equity leaving no bottom in the market.
Well put Roger and agree it's a bit two steps forward and two steps back with some of this stuff. To be fair Wheeler has made it loud and clear what needs to be done with regard to immigration and the effect it is having in suppressing wage demands. Typically Chon Kee & Co aren't listening, perhaps he's worried it will burst his precious housing bubble or hasn't had it cleared by Beijing yet.
I think it's a big thing that Governor Wheeler has actually said that. It's the second time he has said it. The Immigration is Good for You scam is starting to be held up to the light. It seems to be the concept of reasonableness has been dropped from the discussion by the fashionable thinkers of the day. We should be asking what is a reasonable immigration policy that serves us well, a certain amount of coming and going seems completely reasonable but a steadily increasing population does not. Current immigration policy smacks of cultural cringe, it is a hangover from a previous era.
The same argument applies to capital coming in, a certain amount seems reasonable, constantly flogging our assets to overseas buyers (as New Zealand has been doing continuously since 1973) seems ridiculous.
@Roger Witherspoon - On the contrary the Central bankers are not plonkers and the solution is not simple - they know they now have no choice but to do whatever it takes to try and keep Debt growth going to keep commodity prices elevated to a viable level so that the whole shebang doesn't stop. Of course they wont hold the tide forever.
I agree that Govts will now go on a massive spending spree, but it wont fix the underlying problem; the end of cheap energy. At some stage it has to crash. This article might illuminate you
https://ourfiniteworld.com/2016/05/02/debt-the-key-factor-connecting-en…
Wheeler says"
"Significant surplus capacity remains across many economies and, along with low commodity prices, is suppressing global inflation," Wheeler said, pointing to volatility in global markets in recent weeks and an uncertain outlook for global growth and commodity prices, along with political uncertainty.
Wheeler said headline inflation was being held below the bank's 1-3% target band by continuing deflation in tradables inflation, which is related to prices set on international markets. Annual CPI inflation in the June quarter was 0.4%.
Then this inexplicable nonsense:
"Annual inflation is expected to rise from the December quarter, reflecting the policy stimulus to date, the strength of the domestic economy, reduced drag from tradables inflation, and rising non-tradables inflation. Although long-term inflation expectations are well-anchored at 2 percent, the sustained weakness in headline inflation risks further declines in inflation expectations."
We have had years of wishful central bank expectation combined with150 bps of OCR cuts delivering absolutely nothing in terms of forecast outcomes. The only relevant variable is that lower interest rates have over capitalised future asset earnings today. Hence greater fools are holding leveraged over priced investments with no prospects other than the risk of price collapse.
There is no sign that almost zero inflation is harming our domestic economy (3.6 % GDP growth and yet to see the impact of increased dairy prices), and while we continue to match inflation rates with our major markets, we will remain competitive with our export sector. The calling for lower interest rates and the possible lowering of the exchange rate will ultimately cause more harm when the tide turns - which it always does. Only when the major economies sort out their sh... will things start to normalise.
In regards to house prices we have heard wheeler say before that they look like easing...just stall tactics so they can do nothing longer .DO NOTHING GOVERNOR WITH A DO NOTHING JOHN KEY.
It looks like Other parts of canada may bring in the vancouver tax
http://www.cbc.ca/beta/news/business/benjamin-tal-housing-cibc-1.3769153
Per the article:
A prominent economist says that Ontario will have little choice but to implement a tax on foreign house buyers, similar to the 15 per cent surcharge recently slapped on home purchases in Vancouver.
In a recent note to clients, Benjamin Tal of CIBC says the biggest problem facing policymakers with regard to hot housing markets in Toronto and Vancouver is a limit on the supply of new homes.
Housing market 'chaos' has millennials scrambling to buy while they can
In both cities, there's a lack of undeveloped land to build new real estate in the downtown core.
"The main reason behind higher prices in the [Greater Toronto Area] is a policy-driven lack of land supply," Tal said. "And with no change on that front, policymakers have to use demand tools to deal with what is essentially a supply problem."
According to the Real Estate Board of Greater Vancouver, house purchases declined by 26 per cent in August compared with the same month a year earlier. (ED TAKE NOTE IT WORKS !!)
A steep decline in prices may be jarring to recent buyers, but it's exactly what B.C. policymakers are hoping to accomplish, at least in the short term.
That's because the Vancouver tax has had the unintended consequence of inflating bubbles elsewhere.
There's anecdotal evidence that Vancouver's tax has already shifted foreign money to Toronto housing, and media reports suggest some of the money that was pouring into Vancouver has been redirected to Seattle.
(AND AUCKLAND NO DOUBT GIVEN ZERO TAX HERE)
It may be too late to stop cash-tight borrowers who have already bought, but a tax on foreign buyers would help cool the market in the right way.
"Any upcoming changes to regulations," Tal says, "should make it a bit more difficult to borrow — simply to save Canadians, blinded by the current affordability mirage, from themselves."
The issue you dont discuss is that both Australia and Canada have a State (Provincial) and Federal structure where the states have State Governments with taxing powers and can implement a state tax as BC has done without interfering with any Federal Trade Agreements. Same has happened in Australia with Victoria going it alone on specific "foreign buyers" stamp duties
The NZ equivalent would be for Auckland Province to have taxing powers. Which it cant because NZ does not have a "federation of states" structure
The basic question that the government ought to be asking , is : " Does foreign investment in NZ residential property benefit the country or it's citizens ? " ...
... do they pay tax ? ....... No ... they can circumvent it ...
.... are they increasing the supply of properties ? ..... No !
... are they assisting the $NZ ? ... No , helping to raise it , by purchasing ...
...helping first home buyers in any way ? .... definitely not ... pricing them out of the market they live in ...
Continue in this vein , until either you get your answer , or until a government who is not so asleep at the wheeler takes over from Little Johnny & the Gnats !
Don't understand why there are so many moaners on here?
At the end of the day we live in the best country in the world bar none.
Currently in U.S.A.
If you want to live in a country with taxes and many problems then emigrate to the states.
Capital gains tax, Death duties, gratuities, sales tax you name it.
The medical system is a Flippen nightmare and so expensive.
NZ Hasnit so good so stop complaining and get on with it.
Everyone has the same opportunities!
I came to live here 13 years ago and it is home. There is much to like about NZ, but your unsubstantiated assertion that this is the 'best country in the world bar none' is just blinkered jingoism. You are presumably unconcerned by our appalling rate of child abuse, our very high rate of incarceration, our shameful incidence of leaky buildings, the poor quality of many of our rivers,etc.
Your worldview is succinctly summed up by your final statement that 'everyone has the same opportunities". No they don't and I suggest you read "The Spirit Level". It might open your eyes to some uncomfortable facts.
Jingoistic statements are just a convenient way of ignoring inconvenient truths. At best they make you want to vomit. at worst they allow people to justify just about anything. Any way Dunedin is the best place in New Zealand to live ......
http://www.stuff.co.nz/national/84515240/dunedin-is-the-best-nz-city-to…
No you won't. I know that for a fact. People will get less of a suck of the sav based on race, maybe gender and if you aren't tall enough, beautiful enough, there are a myriad of things that discriminate against certain people, there is no two ways about that. I am going to take a wild stab at this, now, but my guess is you are white and male.
Read this, PocketAces? Scalzi nailed it.
http://whatever.scalzi.com/2012/05/15/straight-white-male-the-lowest-di…
You guys will never really be able to understand the world we live in and the trials and tribulations we face. You see we live in a very competitive world where we compete against each other like Titans, Master's of the Universe, an eternal war between the Omegas, Alphas and Betas. Lowest difficulty setting indeed, we just make it look easy because we are playing on a different level!
Just catching up on last nights Backbenchers (my Thursdays start too early too watch it on Wed nights) I recommend you to if you didn't and listen in particular to Julia Whaipooti (about half way through) on the topic of "unconscious bias". Topic was the rich kid who bashed the cop. Also suggest you watch very carefully and juxtapose the bearing and words of Sarah Dowie against Whaipooti's. If you are prepared for it, you might just learn something.
Hah, as someone looking to do exactly that, I'll be buying a house for $250k and using the money I will save (Well over a million once interest rates are taken into account) to further my life, educate my kids and pay my health insurance. All while earning a higher wage.
Tax away, the quality of life in the US is still much cheaper than it is in New Zealand.
I agree. Most people don't realise how lucky we are. Yes Auckland is finally become an international city and all the congestion,inflated house prices that are associated with such cities but if people want old NZ then there are plenty of other places to live.
I think it is good to have a global city HERE rather than have to fly a few hours.
Everything is still going as planed. Hold the interest rate so the bank can justify upping the term deposit rate temperarly to attract more capitals as hardly anyone is buying properties during winter or before the coming Xmas holidays anyways. Rate will drop end of year and after New Years and once people are back from the summer holiday they will be buying houses again. We talking March/April. Wait for summer.
Mark - since when in the last 8 years has cutting NZ interest rates bought the NZD lower - it's been USD moves that have driven the NZD - at best it just moderates it. The spread between NZ and US short-term rates has narrowed from around 3% at the start of 2015, to 2% at the start of this year, and is currently around 1%. However, there will be a point, probably in the next 50 basis points I'd guess, where the incentive to invest in NZ will be gone and the NZD will capitulate - that is something that the RBNZ would need to be very careful in managing as sometimes you get more than you bargained for and often to the negative.
I suspect if the Fed had gone today there may have been a very small chance of a cut, but if I was Wheeler, with limited ammunition to cut further as discussed above, I'd be more focused upon doing it around the timing of the Fed's likely hike in Dec - that will take the spread down one more big, and probably final step, and get a currency move that is both favourable and hopefully manageable.
The do nothing Reserve Bank "...repeated in its seven paragraph statement that the New Zealand dollar was too high and was generating deflationary pressures. In response, the New Zealand dollar rose slightly and remained near one month highs of 73.5 USc, having risen 80 basis points earlier in the morning after the US Federal Reserve held US interest rates."
If the dollar is too high then cut the OCR. You are screwing exporters with your current wait and see approach.
How is the RB Governor being held to account for his lack of action and wilfully ignoring the inflation target policy that's been set by the Government of New Zealand?
Linklater01, Yes we are the best country in the world bar none.
To quote child abuse is ridiculous!
America has murders going on every day. currently in Vegas and there has been shootings at the airport, suspected backpack with a bomb in it just down the strip etc.
They have got two 70 year olds as their best option to be President of the country coming up.
It is definitely not cheaper to live in America I am telling you now.
Yes some things are cheaper but with all the taxes that we don't have it it very hard to get ahead financially here.
Yes everyone does have the same opportunity to get ahead in NZ?
People with the intuition and will can do very well in NZ but moaning about everything all the time is not productive.
Intuition - the ability to understand something instinctively, without the need for conscious reasoning. Great that people can get ahead on guesswork & cannot document how! Buy property as no capital gains tax...
Everyone does not have the same opportunity to get ahead in NZ! To think otherwise is naive. It is to think life is fair. Go and spread your wings - travel the world to get yourself some perspective in life outside your white bread world. Think about NZ children growing up with P residue. Think about kid's growing up with no parents.
NZ is an old money country by its very nature & policy - poor wages, no capital gains on land, etc.
I agree moaning is not productive, but a real-life perspective will do you wonders.
The Man 2,
The Scottish scientist Sir James Dewar once said; "Minds are like parachutes. They only function when they are open." Let me try to prise your's open just enough to let some light in.
I am well aware of America's gun problem,but that is not relevant to NZ's child abuse problem. It is a non-sequiter. Do you understand? They are separate issues. At no point in my original reply did I seek to compare NZ with the US. Let me put it another way. The fact that the US has problems with guns,its health service,soaring inequality,etc in no way minimises our problems with child abuse,leaky buildings and so on.You are conflating unrelated issues.
Let me turn to your,again totally unsubstantiated claim that NZ is the best country in the world,bar none. Of course,like the existence of god,it can neither be proved nor disproved. However,let me ask how you would respond to the same claim being made by say, a Scotsman,an Englishman or even an Australian?
I choose to live here,but I don't go around wearing rose-tinted glasses. You remind me of Dr. Pangloss.
The Man 2... there are more than 2 countries in the world. Stating usa is bad so nz is number one while ignoring all the others is silly.
Nz is a beautiful country with lots of great things going for it however it is not the best maybe one of the best. Plenty great countries out there with even better standards of living.
Child poverty and crime should definetly be considered when comparing.
Nz, especially Auckland has become extremely expensive in regards to housing under JOHN KEY with prices up 1/2 million under his watch. This is reducing the standard of living for many trying to get on the ladder or recent purchasers of housing and will continue to do so for the near future.
Joe.
Agreed there are other countries and I have visited many, but there is nothing like getting back home to NZ for the quality of life that most of the country offers.
I am not talking about Auckland as we all are aware that there are a lot of things wrong with Auckland, but when you compare to the States it is paradise and that is why The overseas buyers are flocking in.
Most people go on and on about this overpriced housing in NZ but it is really just Auckland and most are aware it will come a gutser at some stage, but going on about it continuously is pretty pointless.
The opportunities are further south including Christchurch.
Yes we have had the quakes but that has made many people extremely wealthy and the future for the city is extremely Rosie.
I sense a change in tone. It is a little hard to justify your earlier assertion that this is the best country .........bar none,when you now write off Auckland,which just happens to have around 1/3rd of the population.However,your ability to come up with non-sequiturs is undiminished. The fact is that most overseas buyers do not come from America,so their problems are not relevant to Auckland's housing boom.
The statement that the Christchurch quake has made many wealthy beggars belief and just who is Rosie?
Chinese tourists seem to be packing more than just sunscreen and cameras on vacation. The data discrepancy suggests they’re also shifting cash by buying homes while studying abroad, signing up for life insurance products in Hong Kong, or opening deposit accounts to squirrel money offshore, Setser said. That’s bad news for the global economy.
http://www.bloomberg.com/news/articles/2016-09-21/suitcases-of-cash-chi…
Great article kiwidave
Per the article:
" The data discrepancy suggests they’re also shifting cash by buying homes while studying abroad, signing up for life insurance products in Hong Kong, or opening deposit accounts to squirrel money offshore, Setser said. That’s bad news for the global economy."
This marries up with what the LINZ figures showed.
Lets remind ourselves
13,500 NZ houses bought by Foreign Students and Foreign Temp Workers
This total was 29% of the Resident sales.
NZ media don't classify these as foreign buyers. Australia & Canada do classify these as foreign buyers.
Nothing will change in NZ in regards to affordability until this issue/miss reporting is tackled
That will never happen unfortunatley .... they gloat that foreign buyers is only 3% (offshore only).... not much to gloat about if they use the cad/aus definition and state foreign buyers are 30% of the market... (offshore + temp + students).
I blame the media as they let these two cowboys off the hook and spread the incorrect information all for personal gain...
Small country with only a small number of media outlets all singing off the same tune.... no one wants to upset key just in case they dont get an interview in the future... those that do step up are later let off (John Campbell)
Seriouly john Campbell did more good than all of them put together when he got that legal high fiacsco closed down.... great work seeing that mp with his bow tie (peter Dunne) outside the legal high shop early morning and people out of their heads outside the shop.
It took that to get the message through and some action taken. Maybe that was his undoing
The blind being miss-led by the nose as per usual., is the key issue.
Fiddling the books, while Rome burns, Syria is Russian into oblivion, lucky there was a ceasefire, eh. otherwise there would be hell to pay.
Greece is solvent, sniffing.
Brexit is pounding ahead.
Also, Israel is a protective State, just taking the Liberty...(Try googling Liberty, Aljazeera, or follow this link for the lazy..http://www.aljazeera.com/programmes/specialseries/2014/10/day-israel-at…).
When you employ people with no credibility, no honesty, to lead you up the creek without a paddle, then what can you expect. The Presidents change, policy does not.
But we are a drop in the ocean, we are not drowning in debt are we, We is as rich as we ever were, cos we got it right. It was our customers who got it wrong.
Our interest rates are a bargain, our houses equally so.
Compared to the rest of the World, we are not a basket case, we live in the Land of the Long White Cloud, we are in Heaven, we are a safe haven, we are immune, from the truth.
Plus we are led by a bwanker, so nothing, repeat nothing, can go wrong.
And you might also believe in Fairies..,,borrowing another fantasy.
I liked John Campbell too, but he was too up front, too honest, so that was his undoing.
Cannot have the media telling the truth, can we.
Trillions in debt...just not ours.
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