New Zealand: Continuous rate cuts unlikely

03. Dezember 2015, 13:50 Uhr

Our colleagues at Capital Economics expect the Reserve Bank of New Zealand to march on with further rate cuts, not only this year, but right into the next, too. We disagree.

Not only that recent data points to a relative recovery of the economy (particularly the agriculture sector), as Capital points out, too. But wages also are still rising, and credit to the private sector surprised with its rather frothing growth of late. This holds for households particularly, which merrily add ever more credit to their already outsized debts, fuelling, inter alia, Auckland’s house price bubble – one of the risks to New Zealand’s financial stability cited by the Reserve Bank itself. Analysed from this perspective only, the situation would rather call for a rate rise instead of another cut. Into the addition, there is resilient foreign demand: New Zealands most important economic partner, Australia, surprised almost everyone – ourselves included – with remarkably strong growth in the recent quarter, so for the time being, there is no reason to pre-empt a mooted further deterioration of exports.

Finally, there is the Kiwi and its recent, marked depreciation against the US-Dollar, the Yen and the Euro. Already trading at an all-time low against the Greenback, and having depreciated between 10-20% against the Aussie-Dollar, the Yen, and the Euro respectively, it is anything but clear that the RBNZ might wish to weaken the Kiwi ever further, putting New Zealand’s huge foreign debt position into jeopardy.

The Reserve Bank might well cut another 0.25% this month; yet afterwards, provided that China does not crash, we expect the bank to pause and watch until sufficient negative numbers from the economy warrant further steps.

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