Reserve Bank of New Zealand: Different Messages for 2013 and 2014
September 11, 2013
After the latest monetary policy meeting, a statement was released that reiterated that the Official Cash Rate would stay at 2.5 for the remainder of this year; it has been at that level since late April 2009 except during a 9-month span between June 2010 and March 2011. A 50-bp cut in March 2011 was prompted by a damaging earthquake on the South Island, but reconstruction there is now progressing well.
The statement also foreshadowed monetary tightening in 2014 and did so a bit more specifically than in the prior post-meeting statement on July 25. That time, officials wrote, “The extent of the monetary policy response will depend largely on the degree to which the growing momentum in the housing market and construction sector spills over into inflation pressures. Although removal of monetary stimulus will likely be needed in the future, we expect to keep the OCR unchanged through the end of the year.” Note timing was left at simply sometime later than 2013. Today’s statement concludes, “OCR increases will likely be required next year. The extent and timing of the rise in policy rates will depend largely on the degree to which the momentum in the housing market and construction sector spills over into broader demand and inflation pressures. We expect to keep the OCR unchanged in 2013.”
New Zealand monetary officials continue to monitor excessively rapid house price inflation in Auckland and Canterbury and have a baseline forecast that sees growth strengthening and inflation rising to the middle of the 1-3% target in 2014. The statement acknowledges indirectly the uptrend in global long-term interest rates but calls world financial conditions very accommodative on the whole. The kiwi is high but less so since peaking on a trade-weighted basis in May.
The future is fast becoming the present. Just two policy meetings remain in 2013: October 31 and December 12.
Copyright 2013, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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