Matt Nolan

What is the RBNZ talking about

/8 Comments/in , , /by

“New Zealanders have been showing early signs of moderating their borrowing.”

Does anyone know what these early signs are. From what I can tell, the growth in household borrowing is at record highs, in fact todays M3 data confirms that. If anything, household borrowing seems to be accelerating, I’m sure it will slow eventually, but why did the RBNZ say that if they didn’t mean it.

My suspicion is that the RBNZ wanted to talk the exchange rate down. They said that the level of our exchange rate was the result of New Zealanders borrowing too much, and buying things from overseas. As a result, higher interest rates will stop New Zealanders doing this, helping the exchange rate.

Now that is a load of crap. Our Reserve Bank needs to take a big long look at itself, and realise that it has been acting like a 14 year old girl who got a pimple just before the big ball. Stop making excuses for our inflation and just deal with it! I wish the Reserve Bank governor was a computer.

Matt Nolan

A little bit of risk is a dangerous thing

/in , , , , /by

So, our dollar has fallen 5% against the US, and 8% against the yen in the last few days. While some people may think that the prospect of no more interest-rate hikes is the driver, the truth is that market participants have become a bit more risk-averse.

A little bit of wobblying in the US stock markets, and suddenly a bunch of people have decided to unwind carry trades, and as we are the number one carry trade country, our exchange rate eased. That is why we are only down by 2% against the Aus$ since Thursday, they were a carry trade currency as well.

I expect us to stay around in the mid-70’s, we might even climb up a bit against the US. After all, this new found risk is based on subprime lending worries in the US, and the fundamentals of the strong NZ$ (high interest rates, strong commodity prices) are still in place. However, if asset prices (especially housing) start to ease too quickly, our exchange rate might be in for a bumpy ride.

stevedoogue

You don’t mess with the Guv’nor

/in , , /by

Bollard has shown who wears the pants. In raising the OCR today, he has shown his disregard for Dr Cullen’s mischievous feints at invoking his powers to override the price stability objective. He has also shown the market that he’s willing to back up his tough talk on the housing market – now on its “third wind”- even if this means ratcheting up interest rates even further as the Kiwi dollar reaches record highs.

Ultimately these actions will help bring the currency down. The Kiwi is underpinned by interest rate expectations, and only by raising rates today could he claim – credibly – that inflation is coming under control, meaning further hikes were unnecessary. So far the market appears to have believed him.

Perhaps this was unnecessarily hard on the housing market. The higher rates will bite hard as fixed rate mortgages continue to roll off over coming months. But then again, why not? A few months ago, a sharp correction in the housing market would have spelt disaster for the economy, with only government spending staving off risk of recession. But now a dairy commodity boom is underway, providing a massive boost to the incomes of farmers and wider economy. This means Bollard can afford to be more aggressive with domestic demand, coming down harder on the housing market. Showing that he is, indeed, still the Guv’nor.

Matt Nolan

One hike too far

/2 Comments/in , , /by

So the RBNZ lifted rates. However, they said this is the end, no more hikes this year.

I’m can understand why Bollard wanted to lift now, Cullen threatened his manhood and Bollard had to show he had some balls. I still think this lift is unnecessary, house sales are easing and firm profit margins have recovered, easing inflationary pressure over the next few months. Furthermore, even in the June quarter when retail sales were red hot, core inflation showed signs of easing.

Bollard has said no more rate rises will happen, however I think he’s taken one more than he needed to. Remember, the OCR hits inflation with a lag, it takes 12 months for effective mortgage rates to peak, and some say the full effect of tightening can take 18 months to come into effect. 2008 looks like it will be a difficult year.

Will Taylor

Why the Exchange Rate Makes Me Smile

/1 Comment/in , , /by

So the exchange rate has reached record highs much to the despair of the government, reserve bank and local exporters. There is one sector of the economy that is poised to benefit from this though…. ME

Given all the noise coming from the government about the exchange rate being overvalued and the fact that the reserve bank intervened when the dollar was still below $0.80, I’m thinking it’s a fairly safe bet that over the medium-long term the dollar will come back down. With that in mind, now is fantastic time to buy overseas shares and reap the gains as you ride the dollar back down.

It’ll also be a nice self fulfilling prophecy if will all start sending money overseas, we believe the kiwi dollar is going to fall so we dump it which causes it fall. Think about it, you could actually be helping our exporters by investing in foreign companies, I’ve never felt so good about not investing in the local economy!

Matt Nolan

Monetary policy: Aussie vs NZ

/9 Comments/in , , , /by

At least one Australian and one New Zealand commentator feel that the RBNZ is too focused on inflation. They use the example of the RBA, which seems to be controlling inflation without trying to strangle the life out of the economy.

Do people agree with this? Is our Reserve Bank an inflation zealot? Or does our Reserve Bank have a better idea of the long-term costs of inflation, and as a result, is more interested in stamping it out?

I’m not even sure that the situations are comparable, Australia’s growth rates and productivity rates have far outstripped ours, giving their Reserve Bank more leeway to control inflation. After all March non-tradable CPI inflation was only 3.5%pa in Australia, compared to 4.0%pa in New Zealand, indicating a significant difference in domestic price pressure.