Since the Reserve Bank surprised markets with its shift towards an easing bias, the outlook for interest rates has been a constant source of speculation. But the timing of the shift in stance was curious – in our view, nothing fundamental had changed, and the Reserve Bank is sending out the entire fire brigade to rescue a kitten from a tree.
The New Zealand economy entered 2017 in fine fettle. Despite dairy prices at GlobalDairyTrade auctions having fallen 3.8% since their early December level, the price index is up a massive 66% from its low point in the first quarter of 2016, with whole milk powder prices having risen 77% over the same period. Both price measures hit 2.5-year highs earlier in December.
Equity-rich Auckland homeowners selling up in the big smoke is by now widely recognised. Might commercial property markets in Waikato and Bay of Plenty see a similar effect?
The door remains open for the Reserve Bank to cut the official cash rate (OCR) again in June, with recent data showing that business cost pressures and inflation expectations remain subdued.
The media has been abuzz over recent weeks, with theapparent news that the New Zealand Stock Market is hovering at record levels. However,although a bull run is indeed in full swing, it is a little premature to beginrewriting the record books. Watermarking a market high based on the widelyquoted NZX50 Gross Index does not make sense and prevents sensible historical comparisons.