Posts Tagged ‘RBNZ’
Dr Alan Bollard, New Zealand’s Reserve Bank Governor stated earlier today that the Official Cash Rate will remain unchanged at 3.0%. He said that had made this decision even before the September 4 Canterbury earthquake struck. Here’s Dr Bollard’s full statement:
Reserve Bank Governor - Dr Alan Bollard (source: www.scoop.co.nz)
While the global and domestic economies continue to recover, the outlook has weakened since our June Statement. We consider it appropriate at this point to keep the OCR on hold.
The earthquake that struck Canterbury on 4 September has significantly disrupted economic activity and is likely to continue to do so for some time yet. Many homes and businesses have been damaged, as have significant parts of Canterbury’s public infrastructure. Eventual reconstruction and repairs will require considerable resources over the next year or two, particularly in the construction sector. If, in the aftermath of the earthquake, the prices of some goods and services increase temporarily, monetary policy would remain focused on the medium-term trend in inflation. The Policy Targets Agreement explicitly instructs the Bank to look through temporary price increases generated by a natural disaster.
Looking more generally at the domestic economy, the household sector remains cautious, with consumer spending soft, house sales falling and house prices remaining flat. With continued soft demand for credit, this suggests household spending will not increase to the extent previously projected.
The pace of expansion in the global economy appears to have slowed in recent months with forward indicators of US growth, in particular, deteriorating noticeably. Nevertheless, continued strong growth in Australia and China will support demand for New Zealand exports, reinforcing the continued contribution of high export commodity prices.
Overall, despite the weakened outlook, we still expect that growth will progressively absorb current surplus capacity over the next few years. In addition, changes to indirect taxes and earthquake impacts will cause headline inflation to spike higher over the coming year. Previous experience of GST increases, the fact that annual CPI inflation has been near 2 percent for the past year and a half, and the subdued state of domestic demand suggest this inflation spike will have little impact on medium-term inflation expectations.
Over time, it is likely that further removal of monetary policy support will be required. The pace and extent of further OCR increases is likely to be more moderate than was projected in the June Statement.”
The Forex markets treated this result strongly with the NZD:USD currency pair being slashed by 0.8 cents in the couple of hours post the announcement, before regaining a small part of this loss. Dr Bollard went on to say that he thinks the peak of the OCR rises this interest rate cycle will be at 4.70%, and there are still a number of pressures on New Zealand’s economy so growth and our economic recovery are very slow. As a result we can interpret this by saying that with rising unemployment and other pressures in terms of more deleveraging to come, interest rates are likely to stay lower for a while to come, asset prices are likely to stay lower for a longer period of time, credit is still difficult to get, businesses, farms and individuals are still reluctant to borrow and spend money.
There will still be more mortgagee sales to come, and vendors in many areas need to get real and stop listing their properties for too high amounts (some agents are buying listings as they are desperate to get listing which such a low volume of sales) if they want them to sell anytime soon. I know that there are people wanting to sell who are not able to as they would be in negative equity and unable to discharge their mortgages, or not wanting to sell as they believe (rightly so in my considered opinion) in the medium and long term that they will get a much better price. Combined with the difficulty many purchasers have in raising finance with the current tough credit criteria, and probably more significantly a general reluctance to take on debt and instead choosing to ‘save and prosper’, we will have far less listings and sales, and many areas not getting much net migration will continue to go slightly backwards slowly but surely.
For property investors, the bad news is:
- depreciation cuts come in shortly on 1 April 2011,
- finance is harder to get (for many investors with larger property portfolios),
- GST rises kick in on 1 October affecting rates, repairs & maintenance and management fees, and
- house prices aren’t bolting up any time soon.
The good news for property investors is:
- rents are going up,
- surveys from the New Zealand Property Investors’ Federation state that tenants expect rents to go up,
- interest rates will stay lower for longer,
- interest rates are not expected to be where they were in 2008 (9.x% fixed, over 10.5% floating) in the foreseeable future,
- the sun will rise tomorrow, the day after tomorrow and every day after that – property values will rise in the long-term,
- there are some good positive cashflow properties available in main cities right now.
Source: Reserve Bank Website – http://rbnz.govt.nz/news/2010/4182378.html
Glenn Stevens, the Governor of the Reserve Bank of Australia (“RBA”) has just raised the Australian Offical Cash Rate 0.25% to 4.25%.
This is important to New Zealand as sadly we do tend to try to follow our big brother country and closest neighbour, Australia. Now we don’t have the same pressures as Australia do in terms of our economy still struggling a little bit. We are out of recession, but business is hardly booming. Unemployment is still high, and house prices are not taking off, and moving upwards as they did in 2009.
As a result on 29 April, our Reserve Bank Governor Alan Bollard will in all likelihood leave our OCR unchanged at 4.25%. On 10 June currently I am 75% confident that he will also leave the OCR unchanged. Unfortunately our economy is not currently as good as Australia’s economy, and nor has it been for quite a while.
RBA Governor Stevens was worried last week that house prices were “getting too high”, and in response to questions about inflicting pain on home owners and property investors through causing higher short and medium term rates:
Interest rates to most borrowers nonetheless have been somewhat lower than average…
With growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average.”
New Zealand is very much a different country to Australia, and currently we have few inflationary pressures, cyclically high unemployment and very low house price growth, and an already high currency (higher interest rates tend to mean overseas investors buy NZ Dollars to invest for the good yields they can get), we have far less pressure on us to raise our interest rates.
See the NZ Herald article for more details.