Tag Archives | Reserve Bank

Reserve Bank expects to hold cashrate long-term, though numerous factors could change that

The Reserve Bank kept the official cashrate at 1.75% yesterday, and governor Adrian Orr said: “We expect to keep the rate at this level through 2019 & into 2020.”

This is his summary:

“There are both upside & downside risks to our growth & inflation projections. As always, the timing & direction of any future official cashrate move remains data dependent.

“The pick-up in gdp growth in the June quarter was partly due to temporary factors, and business surveys continue to suggest growth will be soft in the near term. Employment is around its maximum sustainable level. However, core consumer price inflation remains below our 2% target midpoint, necessitating continued supportive monetary policy.

“GDP growth is expected to pick up over 2019. Monetary stimulus & population growth underpin household spending & business investment. Government spending on infrastructure & housing also supports domestic demand. The level of the $NZ exchange rate will support export earnings.

“As capacity pressures build, core consumer price inflation is expected to rise to around the midpoint of our target range at 2%.

“Downside risks to the growth outlook remain. Weak business sentiment could weigh on growth for longer. Trade tensions remain in some major economies, raising the risk that trade barriers increase and undermine global growth.

“Upside risks to the inflation outlook also exist. Higher fuel prices are boosting near-term headline inflation. We will look through this volatility as appropriate. Our projection assumes firms have limited pass-through of higher costs into generalised consumer prices, and that longer-term inflation expectations remain anchored at our target.

“We will keep the official cashrate at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low & stable inflation.”

Links:
Monetary policy statement
Press conference live-stream

Attribution: Bank release.

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Reserve Bank holds rate at 1.75%

The Reserve Bank held its official cashrate at 1.75% today – as forecast by governor Adrian Orr – and he reiterated his view that the rate would stay at that level through 2019 & into 2020.

Mr Orr said: “Employment is around its sustainable level and consumer price inflation remains below the 2% midpoint of our target, necessitating continued supportive monetary policy. Our outlook for the official cashrate assumes the pace of growth will pick up over the coming year, assisting inflation to return to the target midpoint.

“Our projection for the New Zealand economy, as detailed in the August monetary policy statement, is little changed. While GDP growth in the June quarter was stronger than we had anticipated, downside risks to the growth outlook remain.

“Robust global economic growth & a lower $NZ exchange rate is expected to support demand for our exports. Global inflationary pressure is expected to rise, but remain modest. Trade tensions remain in some major economies, increasing the risk that ongoing increases in trade barriers could undermine global growth. Domestically, ongoing spending & investment, by both households & government, is expected to support growth.

“There are welcome early signs of core inflation rising towards the midpoint of the target. Higher fuel prices are likely to boost inflation in the near term, but we will look through this volatility as appropriate. Consumer price inflation is expected to gradually rise to our 2% annual target as capacity pressures bite.

“We will keep the official cashrate at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low & stable inflation.”

Attribution: Bank release.

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Reserve Bank publishes first update on banks’ financial health dashboard

Published 27 August 2018
The Reserve Bank published new data on the financial health of NZ-registered banks on Friday, the first quarterly update of key metrics since it launched the bank dashboard in May.

The dashboard is an interactive tool that makes it easy to compare banks on a range of financial information, such as how much capital they have in reserve, whether they are taking risks by concentrating lending too much on any single area, and non-performing loans. The Reserve Bank has 2 aims – to improve the public understanding of banks, and to increase incentives for banks to operate soundly.

Following feedback, the Reserve Bank said on Friday it had made 2 technical improvements which allow users to share charts more easily, and identify & select which banks they wish to compare.

The next quarterly update is scheduled for 26 November.

Link: Dashboard

Attribution: Bank release.

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Reserve Bank holds, projects low cashrate into 2020

The Reserve Bank kept the official cashrate at 1.75% today, and governor Adrian Orr projected that it would stay at that level into 2020.

That’s longer than the bank projected in its May statement. Also, it doesn’t mean a rate rise at the end of that period: “The direction of our next official cashrate move could be up or down,” Mr Orr said.

The bank governor’s view contrasted with recent business survey predictions of a slowing economy, although he hedged his bets, acknowledging that low business confidence can affect employment & investment decisions.

The bank analysis

“While recent economic growth has moderated, we expect it to pick up pace over the rest of this year and be maintained through 2019.

“Robust global growth & a lower $NZ exchange rate will support export earnings. At home, capacity & labour constraints promote business investment, supported by low interest rates. Government spending & investment is also set to rise, while residential construction & household spending remain solid.

“The labour market has tightened over the past year and employment is roughly around its maximum sustainable level. We expect the unemployment rate to decline modestly from its current level.

“There are welcome early signs of core inflation rising. Inflation will increase towards 2%t over the projection period as capacity pressures bite. This path may be bumpy, however, with one-off price changes from global oil prices, a lower exchange rate and announced petrol excise tax rises expected. We will look through this volatility as appropriate, and only respond to any persistent movements in inflation.

“Risks remain to our central forecast. The recent moderation in growth could last longer. Low business confidence can affect employment & investment decisions.

“Conversely, there is a chance that inflation could increase faster if cost pressures can pass through into higher prices and impact inflation expectations.

“We will keep the official cashrate at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low & stable inflation.”

Link:
August 2018 Monetary policy statement (PDF 1.69 MB)

Attribution: Bank release.

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Expect a 1.75% cashrate for some time, says Orr

The Reserve Bank held the official cashrate (OCR) at 1.75% today, and new governor Adrian Orr said it would remain at 1.75% for some time to come.

His forecast? “The direction of our next move is equally balanced, up or down. Only time & events will tell.”

His assessment of economic conditions: “Economic growth & employment in New Zealand remain robust, near their sustainable levels. However, consumer price inflation remains below the 2% mid-point of our target, due, in part, to recent low food & import price inflation and subdued wage pressures.

“The recent growth in demand has been delivered by an unprecedented increase in employment. The number of willing workers continues to rise, especially with more female & older workers choosing to participate. Likewise, net immigration has added to the supply of labour and the demand for goods, services & accommodation.

“Ahead, global economic growth is forecast to continue supporting demand for New Zealand’s products & services. Global inflation pressures are expected to rise but remain contained.

“At home, ongoing spending & investment, by both households & government, is expected to support economic growth & employment demand. Business investment should also increase due to emerging capacity constraints.

“The emerging capacity constraints are projected to see New Zealand’s consumer price inflation gradually rise to our 2%/year target.

“To best ensure this outcome, we expect to keep the OCR at this expansionary level for a considerable period of time. This is the best contribution we can make, at this moment, to maximising sustainable employment and maintaining low & stable inflation.

“Our economic projections, assumptions, and key risks and uncertainties, are elaborated on fully in our monetary policy statement.”

Link: Reserve Bank May 2018 monetary policy statement

Attribution: Bank release.

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NZ Reserve Bank holds cashrate at 1.75%

While the US Federal Reserve lifted its federal funds rate target to a range of 1.5-1.75% overnight, New Zealand’s Reserve Bank held its official cashrate at 1.75% this morning.

Bank governor Grant Spencer said in his release on the decision:

“The outlook for global growth continues to gradually improve. While global inflation remains subdued, there are some signs of emerging pressures. Commodity prices have continued to increase and agricultural prices are picking up. Equity markets have been strong, although volatility has increased. Monetary policy remains easy in the advanced economies but is gradually becoming less stimulatory.

“GDP was weaker than expected in the fourth quarter, mainly due to weather effects on agricultural production. Growth is expected to strengthen, supported by accommodative monetary policy, a high terms of trade, Government spending & population growth. Labour market conditions are projected to tighten further.

“Residential construction continues to be hindered by capacity constraints. The Kiwibuild programme is expected to contribute to residential investment growth from 2019. House price inflation remains moderate, with restrained credit growth & weak house sales.

“CPI inflation is expected to weaken further in the near term due to softness in food & energy prices and adjustments to Government charges. Tradables inflation is projected to remain subdued through the forecast period. Non-tradables inflation is moderate but is expected to increase in line with a rise in capacity pressure. Over the medium term, CPI inflation is forecast to trend upwards towards the midpoint of the target range. “Longer-term inflation expectations are well anchored at 2%.

“Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.”

Attribution: Bank release.

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Reserve Bank holds as uncertainties rule

The Reserve Bank left the official cashrate unchanged today at 1.75%.

The Reserve Bank of Australia held its cashrate at 1.5% yesterday and the US Federal Reserve decided on 1 February to hold its target range for the federal funds rate at 1.25-1.5%.

NZ Reserve Bank acting governor Grant Spencer said there were numerous uncertainties, and monetary policy would remain accommodative for a considerable period. This is how he saw the economic landscape:

“Global economic growth continues to improve. While global inflation remains subdued, there are some signs of emerging pressures. Commodity prices have increased, although agricultural prices are relatively soft. International bond yields have increased since November but remain relatively low. Equity markets have been strong, although volatility has increased recently. Monetary policy remains easy in the advanced economies but is gradually becoming less stimulatory.

“The exchange rate has firmed since the November statement, due in large part to a weak $US. We assume the trade-weighted exchange rate will ease over the projection period.

“GDP growth eased over the second half of 2017 but is expected to strengthen, driven by accommodative monetary policy, a high terms of trade, government spending & population growth. Labour market conditions continue to tighten. Compared to the November statement, the growth profile is weaker in the near term but stronger in the medium term.

“The bank has revised its November estimates of the impact of government policies on economic activity based on Treasury’s half-year economic & fiscal update. The net impact of these policies has been revised down in the near term. The Kiwibuild programme contributes to residential investment growth from 2019.

“House price inflation has increased somewhat over the past few months but housing credit growth continues to moderate.

“Annual CPI inflation in December was lower than expected at 1.6%, due to weakness in manufactured goods prices. While oil & food prices have recently increased, traded goods inflation is projected to remain subdued through the forecast period. Non-tradable inflation is moderate but expected to increase in line with increasing capacity pressures. “Overall, CPI inflation is forecast to trend upwards towards the midpoint of the target range. Longer-term inflation expectations are well anchored at 2%.

“Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.”

Link: Monetary policy statement

Earlier stories:
7 February 2018: Australian central bank holds rate
1 February 2018: Fed holds rate, no mention of debt programme

Attribution: Bank release.

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Reserve Bank eases loan:value rules

The Reserve Bank foreshadowed today what it called a modest easing of the loan:value ratio (LVR) restrictions on residential lending.

From 1 January, the restrictions will require that:

  • No more than 15% (currently 10%) of each bank’s new mortgage lending to owner-occupiers can be at LVRs over 80%, and
  • No more than 5% of each bank’s new mortgage lending to residential property investors can be at LVRs over 65% (currently 60%).

Reserve Bank governor Grant Spencer said: “The bank will monitor the impact of these changes and will only make further LVR adjustments if financial stability risks remain contained. A cautious approach will reduce the risk of resurgence in the housing market or deterioration in lending standards.”

Releasing the bank’s November Financial stability report, Mr Spencer said New Zealand’s financial system remained sound, and risks to the system had reduced over the last 6 months.

“Momentum in the global economy has continued to build over the past 6 months, reducing near-term risks to financial stability. However, the New Zealand financial system remains exposed to international risks related to elevated asset prices & high levels of debt in a number of countries.

“Domestically, LVR policies have been in place since 2013 to address financial stability risks arising from rapid house price inflation & increasing household debt. These policies have helped improve banking system resilience by substantially reducing the share of high-LVR loans.

“Over the past 6 months, pressures in the housing market have continued to moderate due to the tightening of LVR restrictions in October 2016, a more general firming of bank lending standards and an increase in mortgage interest rates in early 2017.

“Housing market policies announced by the Government are also expected to have a dampening effect on the housing market.

“In light of these developments, the Reserve Bank is undertaking a modest easing of the LVR restrictions.”

Deputy governor Geoff Bascand said: “Looking at the financial system more broadly, the banking system maintains adequate buffers over minimum capital requirements and appears to be performing its financial intermediation role efficiently. The recovery in dairy commodity prices since mid-2016 has supported farm profitability and has helped to reduce bank non-performing loans in the sector. Recent stress tests suggest that banks are well positioned to withstand a severe economic downturn & operational risk events.

“The bank has released 2 consultation papers on the review of bank capital requirements and a third paper on the measurement & aggregation of bank risk will be released shortly. The aim of the capital review is to ensure a very high level of confidence in the solvency of the banking system while minimising complexity & compliance costs.

“The bank has also completed a review of the bank directors’ attestation regime and is making good progress in implementing a new dashboard approach to quarterly bank disclosures. This is expected to go live next May.”

Real Estate Institute critical of no move for first-homebuyers, but…

Real Estate Institute chief executive Bindi Norwell expressed surprise that restrictions had been eased for investors but remained at the same level (20%) for first-time buyers: “For some months now, the institute has been calling for a review for first-time buyers to make it easier for them to get a foot on the property ladder.

“We constantly receive feedback from our members around the country that for many young couples, saving a 20% deposit is just too much for them – especially when they’re already paying rent. With a median house price of $530,000 in New Zealand, this means a deposit of $106,000 is needed. In Auckland, with a median house price of $850,000, this is a deposit of $170,000.”

However, that’s not what the Reserve Bank said. Loans can exceed 80% of value, but the bank has to watch the proportion of its total book in that category.

Link: Financial stability report

Attribution: Bank & Real Estate Institute releases.

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Reserve Bank holds cashrate, warns of Government policy uncertainties

The Reserve Bank left the official cashrate unchanged at 1.75% today. Alongside that certainty, bank governor Grant Spencer said the impact of policies of the new government were uncertain.

Bank governor Grant Spencer said: “Global economic growth continues to improve, although inflation & wage outcomes remain subdued. Commodity prices are relatively stable. Bond yields & credit spreads remain low and equity prices are near record levels. Monetary policy remains easy in the advanced economies but is gradually becoming less stimulatory.

The exchange rate has eased since the August monetary policy statement and, if sustained, will increase tradables inflation and promote more balanced growth.

GDP in the June quarter grew broadly in line with expectations, following relative weakness in the previous 2 quarters. Employment growth has been strong and gdp growth is projected to strengthen, with a weaker outlook for housing & construction offset by accommodative monetary policy, the continued high terms of trade and increased fiscal stimulus.

The bank has incorporated preliminary estimates of the impact of new government policies in 4 areas: new government spending, the KiwiBuild programme, tighter visa requirements and increases in the minimum wage. The impact of these policies remains very uncertain.

House price inflation has moderated due to loan:value ratio restrictions, affordability constraints, reduced foreign demand and a tightening in credit conditions. Low house price inflation is expected to continue, reinforced by new government policies on housing.

Annual CPI inflation was 1.9% in September, although underlying inflation remains subdued. Non-tradables inflation is moderate but expected to increase gradually as capacity pressures increase. Tradables inflation has increased due to the lower $NZ & higher oil prices, but is expected to soften in line with projected low global inflation. Overall, CPI inflation is projected to remain near the midpoint of the target range and longer-term inflation expectations are well anchored at 2%.

Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.

Link: Monetary policy statement

Attribution: Bank release.

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Reserve Bank plays unchanged game, and Peters unimpressed

The Reserve Bank left the official cashrate unchanged at 1.75% yesterday.

The bank’s acting governor, Grant Spencer, said: ‘”Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.”

This nudging along of economic policy doesn’t sit well with the man with the most influential say on future directions, NZ First leader Winston Peters.

Winston Peters.

While voters who believe we’re still in the era of first-past-the-post elections have been busily writing letters to editors explaining that, as National got most votes, it therefore won and should govern, Mr Peters has issued a few statements indicating likely shifts in economic direction:

  • He said the decision to hold the official cashrate at 1.75% “maintains the tone of complacency on New Zealand’s economic outlook”
  • He criticised National for taxing the NZ Superannuation Fund and not making taxpayer contributions for 10 years, and
  • 2 days before the election, he issued a statement affirming his view that the immigration level was too high, criticising the National government “for deluding the public these migrants are skilled”.

Those who see Mr Peters as a negative poser should find his advocacy for change refreshing, because all his policies of the last week have been about improving economic performance.

He issued succinct statements on what the Super Fund ought to be doing, how the Government ought to be supporting it and how international markets bloated with ultra-cheap money are riding for a fall.

Crucially, Mr Peters might change the view commonly held by Western central bankers, including New Zealand’s, that the policy of printing money to stimulate economies is flawed.

But first the Reserve Bank view, from Mr Spencer:

Grant Spencer.

“Global economic growth has continued to improve in recent quarters. However, inflation & wage outcomes remain subdued across the advanced economies and challenges remain with ongoing surplus capacity. Bond yields are low, credit spreads have narrowed and equity prices are near record levels. Monetary policy is expected to remain stimulatory in the advanced economies, but less so going forward.

“The trade-weighted exchange rate has eased slightly since the August Reserve Bank monetary policy statement. A lower $NZ would help to increase tradables inflation and deliver more balanced growth.

“GDP in the June quarter grew in line with expectations, following relative weakness in the previous 2 quarters. While exports recovered, construction was weaker than expected. Growth is projected to maintain its current pace going forward, supported by accommodative monetary policy, population growth, elevated terms of trade and fiscal stimulus.

“House price inflation continues to moderate due to loan:value ratio restrictions, affordability constraints and a tightening in credit conditions. This moderation is expected to continue, although there remains a risk of resurgence in prices given population growth & resource constraints in the construction sector.

“Annual CPI inflation eased in the June quarter, but remains within the target range. Headline inflation is likely to decline in coming quarters, reflecting volatility in tradables inflation. Non-tradables inflation remains moderate but is expected to increase gradually as capacity pressure increases, bringing headline inflation to the midpoint of the target range over the medium term. Longer-term inflation expectations remain well anchored at around 2%.

“Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.”

If you think those closing words are familiar, you’re right: they’re identical to the bank’s closing paragraph in its March statement.

Peters on Reserve Bank

Mr Peters saw less of the smoothing, more a likelihood of troubled times internationally: “Beneath the veneer of stability, large risks are lurking in the global economy. The prolonged era of ultra-cheap money has created expectations that this unprecedented period will continue forever. Fed by cheap money, share & property markets are at record levels and have a long way to fall. In particular, the US share market has had an amazing run with barely a hiccup. In China, debt levels are staggering.

“Irrational exuberance rules. It is impossible to predict when, but something will go wrong and New Zealand should be prepared.”

On the Super Fund

The NZ Super Fund reported a 20.7% return for the year on Wednesday, but Mr Peters went behind that performance to look at a gigantic loss brought about by 2 National acts: “National should apologise to New Zealanders for robbing their NZ Super nest egg,” he said.

“Taxing the NZ Superannuation Fund, and not making taxpayer contributions for 10 years is a serious economic loser.

“The magnificent 20.7% return achieved by the fund in the year to 30 June will help meet future demand for NZ Super, but the nest egg could have been so much bigger if the National government had kept its hands off it.

“In 2015, then Finance Minister Bill English said: ‘Over time, along with the other funds, it will become a more & more significant part of the economy’. That’s ironic given he started taxing it in 2014.

“NZ First would encourage the fund’s managers to invest in infrastructure in New Zealand so it works for New Zealand’s long-term interests.”

On immigration

As for the high net immigration level – 73,500 in the year to August – Mr Peters said it would ensure housing, health services & infrastructure would continue at bursting point.

“The Government deludes the public these migrants are skilled – it’s a myth, most of them are unskilled & drawn to this country in many cases by the generosity of our social services.

“Few countries in the world are as generous, or soft, as we are. Where are the new hospitals, the extra doctors & nurses, the new schools & general infrastructure to cope with all these people?

“New Zealanders find it harder to get a job with the influx from overseas. The fact is, every year we are creating a city the size of Rotorua and the country cannot handle it. Even the Prime Minister [Bill English, in a reference 2 days before the election] admits they can’t keep up with population growth.”

Earlier stories:
22 September 2017: An immigration pause – or a turning point?
6 September 2017: Updated: Reserve Bank sublets to help pay the rent
5 July 2017: Super fund explains tilting strategy
9 June 2017: Reserve Bank raises question of new debt:income loan limits
23 March 2017: Housing supply the main concern as Reserve Bank holds cashrate
30 September 2014: Super guardians pose some investment thoughts
29 September 2008: NZ Super Fund has $2 billion turnaround to $880 million loss

Attribution: Bank & Peters releases.

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