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31-01-2013

Economists surprised by Wheeler's optimistic tone

Landlords.co.nz

Economists have expressed surprised at the optimistic nature of the latest Official Cash Rate announcement.

By Susan Edmunds

As expected, Reserve Bank Governor Graeme Wheeler kept the OCR at 2.5% this morning.

But it’s the comments he made about increasing business confidence and construction activity that have some thinking he’s signalling a move in the rate will happen sooner than had been expected.

Wheeler said: “Global growth is set to recover in 2013 with economic indicators improving in many of our trading partners. Consistent with this, global financial market sentiment is positive, contributing to lower bank funding costs and some reduction in interest rates faced by households and firms in New Zealand.”

Dominick Stephens, Westpac chief economist, said Wheeler seemed very bullish about the prospects for economic growth, and interest rates has risen slightly in response. He said Westpac was predicting an OCR increase in December, which was earlier than most other commentators, and this announcement had reaffirmed his opinion.

Wheeler said the Canterbury rebuild was gathering momentum and its impact would be felt more broadly in incomes and domestic demand.

Gareth Kiernan, managing director Infometrics, said Wheeler seemed to be focusing on the depositors coming in to the market and playing down the fact that inflation was below expectations.

ASB economist Jane Turner said Wheeler made the point that the Reserve Bank would be watching the pick-up in house price growth and credit growth more closely over coming months.

Wheeler said: “The Bank does not want to see financial stability or inflation risks accentuated by housing demand getting too far ahead of supply.”

Stephens said that seemed to indicate that he was keener to increase the OCR than had been expected.

Tony Alexander, BNZ's chief economist, said he wasn't convinced that the announcement was signalling any change in rate tactics but said the announcement was notable for its absence of expressions of concern.  "What else can you say when international share markets are going through a bull run?"

The only negatives in Wheeler’s announcement were the acknowledgement that the latest inflation figures were surprisingly subdued, reflecting the high Kiwi dollar, which was undermining profitability in exports and industries in competition with imports. He said the labour market was also weak.

Turner said inflation was still expected to pick up slowly and there would be little motivation for Wheeler to increase the OCR very soon. She still expected the next move to happen in March.

Tags: graeme wheeler - gareth kiernan - dominick stephens - tony alexander - jane turner

Source: Landlords.co.nz

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