No change in OCR in face of considerable uncertainty

The Reserve Bank has confirmed there is no cause for change to the current setting of the NZ OCR (Official Cash Rate), which remains at 1.75%. Governor Graham Wheeler is entering his last phase as Reserve Bank Governor, awaiting the New Zealand elections due on 23 September, and he made it clear once again, that there was an economic climate of considerable uncertainty, creating a degree of volatility.

Recent NZ economic reporting highlighted an increase in the CPI, and inflation rising to a level of 2.2% based on a strong tradeables performance and some increased prices, but a figure that is well within the Reserve Bank’s target band of 1 to 3%, and it appeared that the Reserve Bank was actually quite comfortable with that. Reported unemployment numbers were considered low at 4.9%, and there is continued strong net immigration activity.  

The USA Federal Reserve announced a fortnight ago that there would be no change to their Fed Reserve rate at this juncture, but continued to anticipate 2 increases in 2017. USA economic data clearly doesn’t support any increase, and it will be interesting to see if there are any improvements supporting further increases. That suggests that any likely increase in the offshore wholesale cost of funding for the NZ Banks is potentially on hold for now, but could be influenced by NZ’s review of the Reserve Banks position in financial and monetary policy controls, hence there remains some uncertainties going forward. 


Meanwhile, it is encouraging that New Zealand continues to be considered a shining light in terms of economic performance, and growth expectations, and New Zealand is continuing to feature as a desirable place to live for both expat kiwis and immigrants, which continues to place pressure on the housing market with both house prices and rents. Business confidence appears to be strong and tourism is flourishing, therefore it would follow that employment opportunity is also strong. Exchange rates are still favouring cheaper imports, which is likely to continue influencing GDP growth.


Jon O’Connor

About the Author

Name: Jon O’Connor        

Jon is the General Manager of Rothbury Life & Morgages, a nationwide life insurance and mortgage advisory operation for Rothbury Insurance Brokers


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Jon is the General Manager of Rothbury Life & Morgages, a nationwide life insurance and mortgage advisory operation for Rothbury Insurance Brokers

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Disclaimer: The articles published on this blog are designed to provide general information and do not take into account any individual’s particular circumstances. We recommend that you obtain professional advice on your requirements before making any decision about a financial product.
 


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