New Zealand Economy

It is becoming increasingly clear that the 5.25% worth of official cash rate (OCR) hikes by the Reserve Bank of New Zealand are crashing the housing market.

Dimitris Valatsas, the chief economist at US advisory firm Aurora Macro Strategy, penned a note to clients last week where he warned that contractionary fiscal policy settings are likely to make New Zealand’s recession even worse.

Independent economist Tony Alexander believes that the Reserve Bank of New Zealand definitely will not hike into a recession. As a result, New Zealand’s official cash rate (OCR) will not rise from its current level of 5.50%.

The Reserve Bank of New Zealand has gone against the forecasts of ANZ and TD Securities and chosen to hold the official cash rate (OCR) at 5.50% at Wednesday’s monetary policy meeting.

The past month has seen New Zealand’s interest rate watchers and financial markets gyrate wildly on interest rates. When New Zealand’s Q4 CPI inflation print came in below economists’ and the Reserve Bank’s projections, economists and markets predicted that the next move in the official cash rate (OCR) would be down.

Bank economists and financial markets have become more hawkish on New Zealand interest rates following stronger-than-expected labour force data.

The past few weeks has seen New Zealand’s interest rate watchers and financial markets swing wildly on interest rates. Last month, when New Zealand’s Q4 CPI inflation came in lower than Reserve Bank projections, economists and markets tipped that the next move in the official cash rate (OCR) would be down.

Late last month, the weaker-than-expected Q4 CPI inflation print flamed expectations that the Reserve Bank of New Zealand may soon cut the official cash rate (OCR).

The stronger-than-expected labour market data in Q4 has spooked bank economists into believing that the Reserve Bank of New Zealand will hike the official cash rate further over coming monetary policy meetings.

The media in Australia and across the world were enamoured last year with research claiming that ‘upzoning’ planning reforms implemented in Auckland in 2016 had a significant impact on lowering house costs.

Earlier this week I reported on New Zealand’s CPI inflation which, like in Australia, has fallen more quickly than the Reserve Bank forecast.

Justin Fabo at Antipodean Macro has written a great analysis of New Zealand’s economy and inflation, which could see the Reserve Bank backflip on interest rates after hawkish commentary in its last Monetary Policy Committee (MPC) meeting in late November.

Statistics New Zealand on Wednesday released consumer price index (CPI) data for the December quarter, which came in below the Reserve Bank’s expectations.

Big Four bank, ASB, says the New Zealand economy has lost momentum much faster than envisaged.

It is hard to believe that Australian home values have risen 10.2% across the five major capitals since bottoming in late January: This rebound has occurred despite 1.25% of rate hikes by the Reserve Bank of Australia, which would normally have sent prices lower.

Westpac has released a note explaining why it does not believe that the Reserve Bank of New Zealand will hike the official cash rate (OCR) at its February meeting, and why the next move in official interest rates is likely to be down.

The Real Estate Institute of New Zealand (REINZ) this week released its housing market results for November, which remained soft. The REINZ House Price Index (HPI) rose 0.2% in November (previous month -0.2%) to be down by 0.2% year-on-year.

Statistics New Zealand has reported that the nation’s GDP fell by 0.3% in the September quarter, contradicting many economists’ predictions of a small rise.

Statistics New Zealand on Wednesday released its new monthly inflation gauge, which captures around 45% of the CPI basket.

The Reserve Bank of New Zealand held the official cash rate (OCR) steady at 5.5% at Wednesday’s monetary policy meeting.