From Tony Alexander - Chief Economist, BNZ
Read this column if: you want a plain English analysis of the Economy, Financial Markets and Interest Rates.
11th of March 2010. Welcome to the BNZ Weekly Overview - No Change In Monetary Policy. The RBNZ did as expected this morning and left the official cash rate unchanged at 2.5%.
Like ourselves they expect to start raising the rate in the middle of the year and that means borrowers are probably still best positioned sitting floating rather than jumping into a fixed rate at the moment to escape the coming rate rises. And it should be noted that the path of interest rate rises will depend substantially on how we Kiwis react to higher borrowing costs. If we have truly changed our debt-hungry behavior then interest rates will not need to rise fast or far – which is good for exporters because the exchange rate will be restrained. The next two years will prove very interesting with regard to monetary policy both here and overseas.
The rate was cut from 8.25% to 2.5% between July 2008 and April 2009 as our economy entered recession then the world faced a major financial and economic crisis. For a long time now the Reserve Bank have been indicating that they intend keeping the cash rate low for an extended period of time though their indication of when a rate rise would like come changed in the second half of last year from the “latter part” of 2010 to the “middle of 2010”. More>>
Construction Following Divergent Paths
One of the things not so much learnt as confirmed officially for us this week was the upturn in residential construction. We have long noted that NZ has a small housing shortage and with construction consent numbers last year falling to a four decade low one of the sectors which would contribute to a recovery this year would be house building. That is happening. More>>
Interest Rates
This morning’s decision by the Reserve Bank to leave the official cash rate at 2.5% surprised no-one and their comments were also largely as expected. Those of a hawkish mind may have chosen to focus on the firm 4% growth forecast for 2011 while those of a dovish mind might have noted their discussion of current policy being tighter than implied by the 2.5% cash rate and that as they raise rates they will get great bang for their buck because so many borrowers now sit floating rather than fixed. More>>
If I Were An FX Receiver What Would I Do?
At the moment we still forecast – and have long forecast - that the RBNZ will start increasing the official cash rate on June 10 and raise it 0.25% every six weeks after that through to early 2012. If that happens and if floating mortgage rates rise at exactly the same pace then the blue column in the graph below shows what you can expect the Total Money floating rate (currently 5.59%) to average over the next one, two and three year periods. More>>
HOUSING MARKET UPDATE
No Useful Fresh Data This Week
For those who missed them, here are the responses relevant to residential real estate in our monthly Confidence Survey. They show things have generally backed off in recent weeks with buyers more reticent, far fewer investors in the market, listings generally building up, and rents facing extra upward pressure. More>>
Exchange Rate & Foreign Economies
Kiwi Dollar Up Slightly
The NZ dollar has ended trading this evening around the US 70.0 cent mark compared with 69.3 cents a week ago. This small gain takes the rate a bit further away from the recent low near 68 cents seen a month ago but still leaves the rate well below the 76 cent level of last October. More>>
If I Were An FX Receiver What Would I Do?
Nothing new to say here. Options have for many months been a very good idea given the huge uncertainty offshore. More>>
Previous Economic Comments
4th March 2010>>
25th February 2010>>
18th February 2010>>
11th February 2010>>
4th February 2010>>
