OrbitRemit Blog - International Money Transfers » China

New Zealands Official Cash Rate Announcement

uk@orbitremit — Thu, 16 Sep 2010 13:26:13 +0000

We received this today from Richard Christensen at Westpac in regard to the Official Cash Rate Announcement this morning, it makes for interesting reading;

I have copied some information below from our Economics team and the RBNZ release regarding this morning’s Official Cash Rate review and the Monetary Policy Statement issued by the Reserve Bank.

We anticipate interest rates will remain largely static for the coming months as a result of today’s review and the associated comments.

OCR on hold at 3%, issues extremely dovish statement, plans to hike OCR more slowly
This morning the RBNZ left the Official Cash Rate on hold at 3%, as expected, and issued a much more dovish statement than expected. The plan for future monetary policy has been radically altered. Whereas the June Monetary Policy Statement projected that 90-day rates would rise to around 6%, now the RBNZ is projecting rates will rise to just 4.4% by mid-2012 – an implicit endorsement of current market pricing.

The detail of the Monetary Policy Statement was even weaker than the press release.

The RBNZ noted that overall global economic conditions had weakened a little – although US economic growth was slowing, growth in Asia remained robust.

The real change since June, in the RBNZ’s mind, is the outlook for NZ domestic demand. The RBNZ has slashed its forecast for residential construction and NZ consumer spending. There was an extraordinary reduction in the GDP forecast. Back in June the RBNZ expected annual growth to rise to 4% during 2011. Now, the RBNZ expects growth to hit just 2.8%. The RBNZ appears to have reached the judgement that recent down-beat confidence surveys portend an extended relapse into economic malaise.

The radically reduced growth outlook means less pressure on medium-term inflation in the RBNZ’s forecast. Back in June, the RBNZ expected robust growth to pressure inflation towards the top of the allowable 1-3% range. Now, the RBNZ expects inflation will settle comfortably at 2.2%, after a one-off spike from GST pushes inflation to 4.8%.

The RBNZ reached its judgement before the earthquake struck Canterbury. The earthquake was seen as neutral for medium-term inflation, even though it will create GDP growth in the short run. Therefore, the earthquake is seen as neutral for monetary policy.

Market implications
The statement implies no change to the OCR in October or December, and only one hike every three meetings thereafter.

Two-year swap rates fell 8bp, and the exchange rate fell 50 pips. A larger reaction was avoided, as markets had anticipated a radical change in the RBNZ’s stance. Most economists, ourselves included, will be astounded by the size the revision to the RBNZ’s plan.

RBNZ media release
The Reserve Bank today left the Official Cash Rate (OCR) unchanged at 3.0 percent.

Reserve Bank Governor Alan Bollard said: “While the global and domestic economies continue to recover, the outlook has weakened since our June Statement. We consider it appropriate at this point to keep the OCR on hold.

“The earthquake that struck Canterbury on 4 September has significantly disrupted economic activity and is likely to continue to do so for some time yet. Many homes and businesses have been damaged, as have significant parts of Canterbury’s public infrastructure. Eventual reconstruction and repairs will require considerable resources over the next year or two, particularly in the construction sector. If, in the aftermath of the earthquake, the prices of some goods and services increase temporarily, monetary policy would remain focused on the medium-term trend in inflation. The Policy Targets Agreement explicitly instructs the Bank to look through temporary price increases generated by a natural disaster.

“Looking more generally at the domestic economy, the household sector remains cautious, with consumer spending soft, house sales falling and house prices remaining flat. With continued soft demand for credit, this suggests household spending will not increase to the extent previously projected.

“The pace of expansion in the global economy appears to have slowed in recent months with forward indicators of US growth, in particular, deteriorating noticeably. Nevertheless, continued strong growth in Australia and China will support demand for New Zealand exports, reinforcing the continued contribution of high export commodity prices.

“Overall, despite the weakened outlook, we still expect that growth will progressively absorb current surplus capacity over the next few years. In addition, changes to indirect taxes and earthquake impacts will cause headline inflation to spike higher over the coming year. Previous experience of GST increases, the fact that annual CPI inflation has been near 2 percent for the past year and a half, and the subdued state of domestic demand suggest this inflation spike will have little impact on medium-term inflation expectations.

“Over time, it is likely that further removal of monetary policy support will be required. The pace and extent of further OCR increases is likely to be more moderate than was projected in the June Statement.”

If you would like to see how this has affected exchange rates today, please visit www.orbitremit.com where you can find more information on online money transfers.

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huw — Tue, 07 Sep 2010 10:21:24 +0000

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OrbitRemit free payment offer extended

uk@orbitremit — Tue, 31 Aug 2010 14:38:47 +0000

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Market commentary from Westpac

OrbitRemit — Tue, 16 Mar 2010 09:43:00 +0000

Below is an article from one of the private advisers at Westpac on the state of the world economies and some forecasts;

Hi,

Further to my note last week, we have today received the following summary of interest rate expectations in most of the major world economies. Also attached is a market outlook which provides more context around what is happening in these economies at the moment and some ideas on where we can expect things to head in 2011.

We conducted our annual macro-economic forecasting conference in early March. This conference provides a forum for stress testing our existing views and debating the medium term outlook. A summary of these discussions appears on page 14. The key parameters of our world view remain intact: very modest 2010 recoveries in the advanced countries, consolidation around trend in the emerging markets, risk appetite variable in the short term but solidifying later this year. The US economy is still seen sub-trend, but we no longer expect any negative quarters this year. We reaffirmed our views that the major central banks will not move on policy rates until 2011.

Australia: In a move that did not surprise the markets, the Reserve Bank raised the cash rate from 3.75% to 4.00% at their March meeting. Pricing of the RBA profile was very volatile over the last month. As we go to press, the markets are again expecting a move towards 5% by the end of the year. That looks far too aggressive. We continue to see a pause at 4.5%.

United States: The US economy was a central topic at our conference. The puzzle regarding the US is to find a balance between the observed rebound in activity and the known vulnerabilities with regard to balance sheets. An additional wrinkle is attempting to unbundle the role of stimulus policies from the performance of underlying demand. After much debate, our Fed view remained intact (no move until mid 2011) but we have moved away from having negative growth in any quarter of 2010.

Europe: Euroland’s nascent recovery from recession, which saw output shrink more than 5% from peak to trough, has lost momentum. Meanwhile, the Greek budget drama continues to unfold day by day. Neither the ECB nor the Bank of England will be in a realistic position to raise rates until 2011.

Japan: The Japanese economy is on a recovery path led by the manufacturing sector. However, the growth rate will be insufficient to make a substantial dent in the degree of surplus capacity that emerged during the recession. So while we have revised up our forecasts for the various partial indicators consistent with the degree of healing observed, consumer price deflation looks set to continue out to the horizon.

China: The data flow at this time of year is very difficult to interpret. Rather than tie ourselves in knots trying to make sense of the seasonality, this month we revisit some recent history to increase our understanding of the sectoral and institutional dynamics that underlie the system. We conclude that anything short of policies that actively lean against aggregate demand are unlikely to bring the growth rate down appreciably.

Asia: The regional economy has recovered on a number of metrics. Some countries have recovered completely, regardless of the assessment method. Others have returned to health in a growth sense but are yet to fully reclaim the volume of activity seen before the Crisis. Our forecasts have a Q2 leaping off point for most central banks in the region to begin interest rate normalisation. This has major implications for the currency markets, as in prior cycles the region has waited on the Fed.

Richard Christensen
Private Adviser
Private Banking Wellington
Tel: +64 4 4981064 Level 14, 318 Lambton Quay, Wellington
Mobile: 027 4413677 PO Box 691, Wellington
Fax: +64 4 4981484
Mailto:Richard_Christensen@westpac.co.nz WELLINGTON

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OrbitRemit makes it cheaper to send money abroad

OrbitRemit — Thu, 11 Mar 2010 07:25:51 +0000

The global money-transfer business is a world away from selling property, but three Wellington real estate agents are making a go of it.

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OrbitRemit director Robbie Sampson – a former Tommy’s real estate agent – says members can send money to New Zealand, Australia, Britain, the Philippines, Vietnam and, as of last month, to China.

View the full article on stuff.co.nz

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OrbitRemit Blog - International Money Transfers » China

New Zealands Official Cash Rate Announcement

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