FYI | Sep 14 2007
By Chris Shaw
In a move in-line with market expectations the Reserve Bank of New Zealand (RBNZ) left official interest rates unchanged at 8.25% yesterday, an outcome that reflected the current uncertainty in global economic conditions as much as the data available to the bank.
UBS suggests to date the RBNZ has successfully walked the line in policy terms but with the outlook for growth to disappoint in the medium-term it expects there will be some wriggle room for rate cuts in the medium-term.
GSJB Were agrees, though its timetable calls for rates to begin to come down around the middle of 2008. Commonwealth Bank’s New Zealand economist Chris Tennent-Brown suggests it will be late in 2008 before rates can be eased, as he sees inflation as heading back towards the top of the RBNZ’s target band of 1-3%.
Early in 2008 is the timetable for rate cuts to begin according to TD Securities senior strategist Joshua Williamson, a scenario he suggests would be helped by weaker CPI data in coming months. Looking at the cycle longer-term Williamson suggests rates could eventually come down by as much as 2%.
Macquarie agrees the latest economic data show some signs of a slowing in the domestic economy, particularly as recent rate increases have begun to bite in terms of slowing consumer spending levels.
The broker suggests this is being largely offset though by weakness in the New Zealand dollar as a result of the recent volatility in global markets, which is boosting the gains being achieved by strong prices increases in soft commodities.
As a result the broker notes inflationary pressures remain, so it expects the CPI to remain at the top of the target band through to the end of 2009. As a result Macquarie suggests monetary policy will remain on hold for some time, with clear signs of an easing in inflationary pressures to be needed before rates come down.
