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10 Dec 2014
Little chance for a policy tightening from the RBNZ – ING
FXStreet (Barcelona) - James Knightley, Senior Economist at ING, notes that with New Zealand’s rapidly slowing growth, inflation at just 1%, and milk prices remaining under downward pressure at a time of ongoing NZD strength, there is little prospect of near-term policy tightening from the RBNZ.
Key Quotes
“New Zealand has outperformed expectations in 2014 with the economy likely to have grown by around 3.5% this year thanks the rebuilding work in the Canterbury region, high inward net migration and loose monetary policy.”
“However, there are signs that the economy is beginning to cool in response to the four 25bp rate hikes implemented in March, April, June and July and the ongoing strength of the New Zealand dollar. Consumer confidence has fallen to a 14 month low, housing activity is moderating and there are worrying developments on the trade balance.”
“Milk is a key concern on this front with a growing global supply glut (Europe and America have ramped up output in recent years), resulting in a 55% fall in the price of New Zealand’s largest export this year.”
“Moreover, the currency strength is adding to disinflationary pressures with headline CPI running at just 1%YoY.”
“With the central bank continuing to state that the current level of the New Zealand dollar “remains unjustified and unsustainable”, which argues for “further significant depreciation”, we suspect that the central bank will continue to sound neutral on rate hikes in its assessment in tomorrow’s policy press release.”
“However, the risks to our view are that while New Zealand should still be amongst the leading central banks in terms of policy tightening next year, it may not start until 3Q14, rather than 2Q14 as we had been predicting.”
Key Quotes
“New Zealand has outperformed expectations in 2014 with the economy likely to have grown by around 3.5% this year thanks the rebuilding work in the Canterbury region, high inward net migration and loose monetary policy.”
“However, there are signs that the economy is beginning to cool in response to the four 25bp rate hikes implemented in March, April, June and July and the ongoing strength of the New Zealand dollar. Consumer confidence has fallen to a 14 month low, housing activity is moderating and there are worrying developments on the trade balance.”
“Milk is a key concern on this front with a growing global supply glut (Europe and America have ramped up output in recent years), resulting in a 55% fall in the price of New Zealand’s largest export this year.”
“Moreover, the currency strength is adding to disinflationary pressures with headline CPI running at just 1%YoY.”
“With the central bank continuing to state that the current level of the New Zealand dollar “remains unjustified and unsustainable”, which argues for “further significant depreciation”, we suspect that the central bank will continue to sound neutral on rate hikes in its assessment in tomorrow’s policy press release.”
“However, the risks to our view are that while New Zealand should still be amongst the leading central banks in terms of policy tightening next year, it may not start until 3Q14, rather than 2Q14 as we had been predicting.”