Matt Nolan

A 75 basis point cut on the cards?

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Recent credit market uncertainty has seen the funding cost for retail banks rise significantly. It is possible that the impact of the 50 basis point cut in the official cash rate on September 11 could be more than wiped out.

As a result, if credit market uncertainty remains over the next month there will be substantial pressure on the Reserve Bank to cut further – in order to provide the “relief” to households that they have deemed necessary. Given that the market was torn between a 25 basis point cut and a 50 basis point cut in October already, recent uncertainty could well push the Bank to a massive 75 basis point cut!

Now, I’m definitely an inflation hawk. However, I have no issue with the Reserve Bank cutting interest rates in the face of rising financing costs – as they are effectively cutting in order to stand still. However, I would like it if the Bank could state that they are cutting to do this more transparently. For example, if they could create an index which represents total funding costs and forecast it out they could show that they could show that they are keeping financial conditions in restrictive territory.

Not delivering this message effectively put inflation expectations at risk and damages credibility – in this sense I strongly agree with Stephen Toplis from BNZ.

Matt Nolan

Credit crisis mark 2: How will it impact on New Zealand

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I see that this is a popular topic at the moment, so I thought I would add my two cents.

Before doing so I’d like to point out that the Rates Blog has a good piece on it, and this Stuff article gives the opinion of most of the banks (BNZ’s currency strategist also gives a good breakdown on the Rates blog).

Now the way I see it, there are two channels that this crisis can and will impact on the New Zealand economy:

  1. Impact on export/import prices and volumes,
  2. Impact on domestic interest rates.
  3. Update: Impact on capital investment

Outside of these two channels global events will have no impact on New Zealand. This involves assuming that external factors don’t beat around our consumer and producer confidence for no reason, and that net migration does not change. Although these assumptions aren’t completely true, I think it is fair to assume that the impact of these factors is relatively minor.

As a result, lets talk about these channels.

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Matt Nolan

Cartoon: Credit crisis and NZ

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Source: (Mike Moreu on Stuff)

This guy’s a genius – what a brilliant cartoon 🙂

It certainly captures how things fell at the moment – I will have a post up on the crisis later in the day (here).  Mike discusses his cartoon here.

Matt Nolan

How much poorer is New Zealand than Australia?

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Over at Anti-dismal, Paul Walker links to a paper by NZIER on New Zealand incomes relative to Australia.

In the paper, NZIER states that:

the average living standards of New Zealanders in 2007 were 24% lower than those of Australians (or equivalently, relative to living standards in New Zealand, Australia’s were
32% higher)

However, I am not convinced – not yet anyway. Here’s why:

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Matt Nolan

More confidence?

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Our preferred measure of consumer confidence, the Roy Morgan survey, has risen considerably over the last two months – and another set of data is due out of Friday, woohooo. However, this is not the only measure of consumer confidence – ultimately they all have some value.

On Sunday, the Colmar Brunton consumer confidence survey was released for September. This survey was taken mostly before the massive 50 basis point cut to the official cash rate – but according to this document it was still at 23%. This was the highest value of consumer confidence since June 2002!

Source (TVNZ)

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Matt Nolan

Blog issues

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Hi all,

We are currently having some problems with wordpress – namely bits keep on disappearing from our side bar (such as the blog roll!) and piles of rather random spam has been turning up.

Hopefully it is not too annoying – I don’t really know how to fix anything, so we will just have to hope that it gets more sorted over time.

On another note, if anyone wants to put up any posts on economic issues (opinion pieces, essays, focused rants), or has any ideas on something they would eventually like to hear about (although I can’t promise I’ll get around to it 😛 ), either mention it in the comments or email me at the address in the About Us section.