Unlikely prospect of RBNZ rate cut rears head 26 Jan 2015
Related articles
- NZ consumers grow more upbeat, may resume spending Business
- Knowles quits as CEO of KiwiBank Business
- NZ migration bolstered by British invasion Migration
- Sludge Report #192: The Naked Budget Columns
- Budget 2010 – Building the Recovery News
- NZ manufacturing activity reaches highest since 04 Business
- NZ dollar hits 22-month high vs euro Business
- Unemployment rate falls from 7.1 to 6 percent Recruitment
- OceanaGold finds new gold deposits at Fraser mine Business
- Transpower gets go-ahead for $170m SI upgrade Business
Article - BusinessDesk
Unlikely prospect of RBNZ rate cut rears head as tightening cycle dissipates
By Jonathan Underhill
Jan. 26 (BusinessDesk) - Traders have started pricing in a small prospect of interest rate cuts this year by the Reserve Bank of New Zealand, whose forecasts have overstated the pace of inflation for two straight quarters.
The central bank is seen cutting the official cash rate by 9 basis points over the next 12 months, based on the overnight interest swap curve. Before the bank signalled a pause in its tightening cycle in July last year, some 70 basis points of hikes had been priced in. The direction of the OCR turned negative after figures this month showed the consumers price index fell 0.2 percent in the fourth quarter.
Traders see zero chance of a hike in the official cash rate in this week's policy review and there is widespread expectation governor Graeme Wheeler will tone down or even drop reference to a tightening bias. At his Dec. 11 review, he said some further increase in the OCR "is expected to be required at a later stage," dependent on emerging data. Since then, data has shown annual inflation is below the bank's 1 percent-to-3 percent target range for the first time since the first quarter of 2013.
Wellington-based fund manager AMP Capital (NZ) expects the central bank to lift the OCR in the first half of 2016, reaching a "neutral" level of 4.25 percent by the end of next year. But Grant Hassell, AMP Capital's head of fixed income, says further hikes may not eventuate.
"Personally I think there's a chance that this might be it for this part of the tightening cycle," Hassell said. Rate cuts signalled by the overnight interest swap curve "may be a little bit overdone but it shows the market has changed its mind completely on the RBNZ raising rates any time soon."
The Reserve Bank hasn't cut interest rates since former governor Alan Bollard slashed the OCR to a record low 2.5 percent in March 2011. If the bank found itself in the position of wanting to lower borrowing costs again because of, say, a further slump in commodity prices or a spike up in the kiwi dollar, it would most likely tweak its macro-prudential tools first, given its desire to avoid inflaming the housing market, Hassell said. The kiwi fell to a three-year low 74.05 US cents today.
Economists at Westpac Banking Corp say traders may not have priced in enough prospect of rate cuts even though they see such an outcome as "unlikely, but not unthinkable."
"We would place roughly 20 percent odds on two OCR cuts occurring this year," Westpac chief economist Dominick Stephens wrote in his OCR preview last week. He expects the central bank will tighten macro-prudential policy in 2015, "as falling fixed mortgage rates stimulate the housing market."
Home loan rates fixed for two years or longer fell below variable-rate mortgages last year, hastening the trend for borrowers to fix their mortgages. Banks on average are offering five-year fixed mortgages for 6.61 percent, according to interest.co.nz data, while floating rate loans average 6.72 percent. Borrowing fixed for five years has fallen from as high as 7.31 percent in April 2014. As at November last year, 56 percent of home loans were fixed, up from 43 percent in November 2013 and just 35 percent in the same month of 2012, according to Reserve Bank figures.
Stephens says Wheeler may want to signal a rate cut isn't on the cards, arguing that low inflation reflects temporary phenomena such as falling global crude oil prices, while medium-term inflation may be driven by domestic issues.
"Lower interest rates will surely provide further stimulus to the housing market, raising concerns about financial stability at the central bank," Stephens said. "New Zealand is experiencing above-trend GDP growth, an unprecedented net migration boom, and a construction boom. Not to mention that the past three months of housing market data have been the strongest in a decade."
(BusinessDesk)
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
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
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
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
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
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
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
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
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
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
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
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
14 AUGUST 2018Historic pay equity settlement for education support workers
RT HON JACINDA ARDERN
HON CHRIS HIPKINS
Prime Minister
The... more