Woolworths contacts thousands of staff over pay issues dating back nine years, the West Coast braces for deluge and Prince William visits Kate in hospital as she recovers from surgery in the latest NZ Herald headlines.
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ANALYSIS
Mortgage holders are entering 2024 hoping the Reserve Bank (RBNZ) will be satisfied it has squeezed their disposable incomes enough to get inflation back in its box.
This is seeing wholesale interest rates lift, having tracked down towards the end of 2023.
ANZ economists are also wary that while data out next week is likely to show New Zealand’s inflation rate fell sharply in the December quarter, domestically driven inflation is unlikely to have fallen enough.
ANZ economists expect Reserve Bank governor Adrian Orr to change tack quickly once he's satisfied inflation is under control. Photo / Mark Mitchell
They see the annual inflation rate dropping from 5.6 per cent in the September quarter to 4.7 per cent in the December quarter (a reading which would be below the RBNZ’s 5 per cent forecast).
But, they only see non-tradeable (largely domestically-driven) inflation hitting 5.7 per cent.
This said, ANZ economists now believe the RBNZ will cut the Official Cash Rate in August - earlier than previously expected.
“We don’t expect a lot of advance warning of policy easing,” they said.
“The sensible strategy for the RBNZ is to deny, deny, deny, cut, in a bid to avoid a premature easing in financial conditions that would be hard to haul a dovish market back from.”
Accordingly, ANZ senior strategist David Croy believed RBNZ chief economist Paul Conway would be in “deny” mode during a speech he’s set to deliver on January 30.
Conway is expected to share the RBNZ’s view of the data (including weaker-than-expected gross domestic product figures) that’s been released since the RBNZ last reviewed the OCR on November 29.
Financial markets will pay very close attention to what Conway says, as they’d otherwise have to wait until the next OCR review on February 28 to hear from the RBNZ.
“I can’t see Paul Conway’s speech being the sort of dove-fest some in the market are expecting,” Croy said.
He expected Conway to maintain the RBNZ’s hawkish position, and lean against the market to prevent interest rates from falling too soon.
Croy also recognised Conway couldn’t suggest the RBNZ was changing tack on the monetary policy front, unless this decision had been made by the Monetary Policy Committee, which isn’t due to meet until the end of February.
Westpac head of strategy Imre Speizer agreed, saying Conway’s comments would likely align with central bankers in the United States and Europe.
Speizer said Conway would likely say that while the data has been mixed, the inflation fight isn’t over. He might also point to market pricing being overdone.
Speizer couldn’t see wholesale interest rates (which influence mortgage rates) falling materially in the near term.
Interest rate watchers will be aware Kiwibank and TSB recently cut their longer-term mortgage rates.
Rather than undercut their competitors, they did so to ensure their rates better aligned with the bigger banks, which cut their longer-term rates at the end of last year on the back of falling wholesale rates.
It’s also worth noting the rates the banks cut were for terms that had been falling in popularity.
Fixing for a year was by far the most common route chosen by those who took out mortgages in 2023, while fixing for six months spiked in popularity (from a lower base), as borrowers bet on rates falling through 2024.
While the RBNZ in November pencilled in its first OCR cut in 2025, Speizer said markets were pricing in an OCR cut for July this year, and then two or three more by the end of the year.
He cautioned, markets are incentivised to move early - to be ahead of the curve - and don’t always get things right.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
