RBNZ to leave rates unchanged in pre-election MPS   8 Sep 2014

Article - BusinessDesk

RBNZ to leave rates unchanged in pre-election MPS as inflation stays tame

By Jonathan Underhill

Sept. 8 (BusinessDesk) - The Reserve Bank of New Zealand will probably keep its key interest rate unchanged in a policy review that comes nine days before the general election, with consumer prices tame enough for the bank to trim its outlook for inflation and rates.

The central bank will keep the official cash rate at 3.5 percent on Thursday, according to a Reuters survey, and isn’t expected to hike again this year after saying in July that a “period of assessment” was needed.

The Reserve Bank’s survey of expectations last month showed businesses see a slower pace of inflation in the next two years as economic growth comes off the boil. Quotable Value data shows property values rose at the slowest pace in 14 months in August, while dairy prices in the GlobalDairyTrade auction have fallen 44 percent from their February peak.

Against that, net migration is surging and the kiwi dollar has fallen below the track expected by the Reserve Bank on a trade-weighted basis - a weaker currency tends to drive up prices of imports. Fixed-rate home mortgage rates have fallen from their highest levels in almost three years, according to interest.co.nz, which could re-ignite the property market.

“Having signalled a pause in July, and the data-flow since being supportive of such a move, the RBNZ is almost certain to leave the OCR unchanged at 3.5 percent,” said Robin Clements, senior economist at UBS New Zealand. “We expect there to be uncertainty as to the length of the 'period of assessment' but that it is still expected that rates will need to 'adjust further towards a more-neutral level'.”

The central bank is likely to assume the status quo in terms of the election on Sept. 20 and is typically cautious not to be caught up in the politics, although there is a risk of a centre-left coalition that could well change the outlook for the economy and interest rates.

“At this juncture firm commitments and bold forecasts are best avoided in favour of a softly-softly approach,” said Dominick Stephens, chief economist at Westpac Banking Corp. “The best course available to the RBNZ is to ‘kick the can down the road’ until the election has passed. The RBNZ can tackle the market head-on in December, if the data still warrants.”

The trade-weighted index was at 79.01 Monday morning in Wellington, which is below the 79.7 average level the central bank forecast for the third quarter in the June monetary policy statement.

Governor Graeme Wheeler may lower the track of the currency over the forecast horizon and soften his rhetoric, having said in July that the kiwi was “unjustified and unsustainable and there is potential for a significant fall” given it hadn’t adjusted to falling commodity prices.

He’s also expected to trim the track for the 90-day bank bills, in keeping with an OCR tightening cycle that may not be as far or fast as earlier thought. In June, the bank forecast the 90-day bank bills reaching 4 percent in the fourth quarter and 4.7 percent 12 months further out.

In late July, Fonterra cut its farmgate milk price forecast for the 2014/2015 season to $6 a kilogram of milk solids from a previous forecast of $7 kgMS. Since then the GDT price index dropped 6 percent to the lowest since July 2012 in last week's GlobalDairyTrade auction.

Economists at ANZ New Zealand last week cut their forecast for 2014/15 to $5.25 kgMS, that would amount to about a $5.1 billion hit to dairy revenue, or
2.2 percent of gross domestic product.


(BusinessDesk)

Add a comment

News

Hilary Timmins' Award-Winning UK Documentary Series To Inspire NZ Students

29 Jun 2020 Education
Dream Catchers, produced and directed by Hilary Timmins, celebrates the success stories of more than thirty inspirational New... more

New Zealand reaffirms support for Flight MH17 judicial process

7 Mar 2020 News By Rt HON WINSTON PETERS
Ahead of the start of the criminal trial in the Netherlands on 9 March, Foreign Minister Winston Peters has reaffirmed the need to... more

Business

NZ Government's Economic package to fight COVID-19

17 Mar 2020 Business News By RT HON JACINDA ARDERN
The Coalition Government has launched the most significant peace-time economic plan in modern New Zealand history to cushion the... more

NZ Government announces aviation relief package

19 Mar 2020 Business News By Hon Phil Twyford
Transport Minister Phil Twyford today outlined the first tranche of the $600 million aviation sector relief package announced earlier... more

Living

Diversity was Key at New Zealand Trade Tasting in London

6 Jun 2022 Food & Wine
New Zealand Winegrowers Annual Trade Tasting was recently held in London, on Wednesday 4 May, in Lindley Hall. It was the first... more

Kiwi author stuns Behind the Butterfly Gate

12 Jan 2022 Arts By Charlotte Everett
Hidden behind the Butterfly Gate is where the secret has been kept for 76 years...  New Zealand writer Merryn Corcoran’s... more

Property

Fairer rules for tenants and landlords

17 Nov 2019 Property By Minister Kris Faafoi
17 NOVEMBER 2019 The Government has delivered on its promise to the over one million New Zealanders who now rent to make it fairer... more

New Zealand Government will not implement a Capital Gains Tax

17 Apr 2019 Property By RT HON JACINDA ARDERN
The Coalition Government will not proceed with the Tax Working Group’s recommendation for a capital gains tax, Jacinda Ardern... more

Migration

Boosting border security with electronic travel authority – now over 500,000 issued

19 Nov 2019 Migration By Hon Iain Lees-Galloway
19 NOVEMBER 2019 We’ve improved border security with the NZeTA, New Zealand Electronic Travel Authority, which helps us to... more

Christchurch reinstated as refugee settlement location

18 Aug 2018 Migration
18 AUGUST 2018 HON IAIN LEES-GALLOWAY The announcement that Christchurch can once again be a settlement location for refugees... more

Travel

Gallipoli Anzac Day services cancelled

19 Mar 2020 Travel & Tourism By RT HON JACINDA ARDERN
The New Zealand and Australian Governments have announced this year’s joint Anzac Day services at Gallipoli will be cancelled... more

New Zealanders advised not to travel overseas

19 Mar 2020 Travel & Tourism
New Zealanders advised not to travel overseas more

Sport

The Skipper's Diary: Sir Richard Hadlee honouring his father and NZ's Forty-Niners

27 Oct 2019 Cricket By Charlotte Everett
NZNewsUK London Editor Charlotte Everett spoke to Sir Richard Hadlee about why he’s chosen to publish his father’s... more

PREVIEW: All Blacks v England semi-final

26 Oct 2019 Rugby
The two most convincing quarterfinals winners are set to square off in a semifinal showdown for the ages when the All Blacks meet old... more

Columns

Gordon Campbell on the Gareth Morgan crusade

11 Nov 2016 Opinion
Gordon Campbell on the Gareth Morgan crusade First published on Werewolf The ghastly likes of Marine Le Pen in France and Geert ... more

Gordon Campbell on the US election outcome

10 Nov 2016 Opinion
Column - Gordon Campbell   Gordon Campbell on the US election outcome Well um.. on the bright side, there (probably)... more

Kiwi Success

Congratulations to Loder Cup winner

26 Sep 2018 People By Hon Eugenie Sage
25 SEPTEMBER 2018 The Loder Cup, one of New Zealand’s oldest conservation awards, has been awarded to Robert McGowan for 2018... more

Appointments to New Zealand National Commission for UNESCO

16 Aug 2018 Appointments
16 AUGUST 2018Appointments to New Zealand National Commission for UNESCO HON JENNY SALESA Associate Education Minister Jenny Salesa is... more

Recruitment

Historic pay equity settlement for education support workers

14 Aug 2018 Recruitment By RT HON JACINDA ARDERN
14 AUGUST 2018Historic pay equity settlement for education support workers RT HON JACINDA ARDERN HON CHRIS HIPKINS Prime Minister The... more

Historic pay equity settlement for education support workers

22 Aug 2018 Recruitment By RT HON JACINDA ARDERN
14 AUGUST 2018Historic pay equity settlement for education support workers RT HON JACINDA ARDERN HON CHRIS HIPKINS Prime Minister The... more