Northland Property Investors' Association

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25-10-2012

Hint of optimism in OCR announcement

Landlords.co.nz

The decision this morning to leave the official cash rate (OCR) unchanged at 2.5% hasn’t surprised anyone – but the hint of optimism included with the Reserve Bank governor’s statement has.

By Susan Edmunds

New governor Graeme Wheeler said: “Market sentiment has improved from earlier in the year, suggesting the risks to the global outlook are more balanced. Domestically, GDP continues to expand at a modest pace. Housing market activity is increasing as expected, and repairs and reconstruction in Canterbury are boosting the construction sector.”

Mark Lister, of Craigs Investment Partners, who was confident earlier in the week that Wheeler would not tinker with the rate, said that was being taken as a sign that the RBNZ would not respond to calls for a drop in the OCR.

A drop in inflation below the RBNZ target band was taken a sign the OCR could drop but Wheeler appears to have shrugged that off. “While annual CPI inflation has fallen to 0.8%, the Bank continues to expect inflation to head back towards the middle of the target range. We will continue to monitor inflation indicators, such as pricing intention and inflation expectation data, closely over coming months.”

Lister said people could read into Wheeler’s statement that the next OCR move was likely to be up, although that was still some time off.  The Kiwi dollar lifted after the announcement.

He said home loan interest rates would likely also remain flat in the medium-term. “People who had been expecting another OCR cut and a leg down for interest rates will find that’s not the case over the short-term at least.”

Wheeler noted that fiscal consolidation was constraining demand growth and the high currency was undermining exporters’ earnings. He also noted that the signs of improvement in the economy were tempered by the fragility of global markets.

But Dominick Stephens, Westpac chief economist, said Wheeler seemed notable more upbeat about the global economy. He said he appeared to have an orthodox approach to monetary policy, with his focus firmly on inflation. “He reiterated a hold statement, perhaps with a bit more flexibility either way.”

Cameron Bagrie, of ANZ, said those expecting a policy change from Wheeler were unrealistic. “I still think the Reserve Bank is in worry, wait and watch mode."

He said he expected it would be a while before the OCR was cut or raised.

Tags: ocr - mark lister - graeme wheeler - cameron bagrie - dominick stephens

Source: Landlords.co.nz

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