NZ sharemarket dips as Reserve Bank holds OCR steady
The Reserve Bank decided to leave the Official Cash Rate (OCR) on hold at 3.25%, as widely expected.
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RNZ News
6 hours ago
- RNZ News
What does inflation data mean for your home loan?
It is widely expected that the Reserve Bank will cut the official cash rate again in August, which could pull short-term rates down slightly. Photo: RNZ Inflation pushed up to its highest level in a year in the June quarter - but what is that likely to mean for interest rates? From the end of 2021, the Reserve Bank steadily hiked the official cash rate to get on top of inflation that peaked at an annual rate of more than 7 percent. But while the 2.7 percent annual increase recorded in June will be uncomfortable for those paying the higher council rates and rents that helped drive the increase, commentators say it's not likely to mean much for the future track of home loan rates or the official cash rate (OCR). The lift was in line with Reserve Bank expectations published in May, and less than some economists had forecast and the bank signalled in July. It is widely expected that the Reserve Bank will cut the official cash rate again in August, by 25 basis points (bps). That could pull short-term rates down slightly, but longer-term home loan rates tend to be more influenced by international factors. But what happens after that is less certain. Some economists expect a further drop is likely. Miles Workman, senior economist at ANZ, said the data was not a road block for further OCR cuts. "We continue to pencil in OCR cuts for August, November and February, but today's data suggest the easing we've long been expecting could arrive a little more quickly." He said the risks were tilting towards further cash rate easing being delivered sooner than the bank's expectation of cuts only at monetary policy statements, rather than the reviews in between. "We have long been expecting the RBNZ will need to cut the OCR more than they have recently been signalling ... the risk of a follow-up cut in October is now looking higher. Labour market data in early August will be important." ANZ senior economist Miles Workman. Photo: Supplied Kiwibank economists argued the official cash rate should still drop to 2.5 percent, to absorb some of the slack in the economy, particularly in the labour market. "Our best guess, incorporating the damage inflicted through the recession we're still crawling out of, has inflation falling to 1.8 percent next year. If realised, the RBNZ continues to overcook." Westpac said it was still expecting a 25bps cut in August but it would watch core inflation measures to see how strong the underlying trend in prices was beyond that. But Gareth Kiernan, chief forecaster at Infometrics, said he expected the Reserve Bank would need to stop at an OCR of 3 percent. "There were reassuring signs in there that the price pressures are more isolated than broad-based. So there's enough to suggest the bank can ease a bit more, but not massively. "Sustained weakness in labour market data in a couple of weeks' time, along with other monthly data around job ads, employment, consumer spending, and manufacturing activity would be necessary to push the bank towards further cuts in October and/or November." ASB economists expect a cut to 3 percent in August, but said there was both upside and downside risk. "After earlier tapping the monetary policy brakes, the RBNZ is expected to press the accelerator and actively provide policy support. We expect the OCR to be cut by 25bps in August to 3 percent. The inflation outlook is highly uncertain, with both upside and downside risks to this view. Persistently high inflation could see the OCR held at 3.25 percent. However, a more protracted than envisaged mid-2025 downturn in NZ economic activity, a higher NZ unemployment rate (expected to hit at least 5.3 percent in 2025), or a global economic slump could push medium-term NZ inflation lower and see the OCR move below 3 percent." Sign up for Ngā Pitopito Kōrero , a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
The Spinoff
7 hours ago
- The Spinoff
The government's consistent, principled approach to economic data
If it's good, the government did it. If it's bad, it's someone else's fault. When data came out showing inflation at a 12-month high on Monday morning, the government quickly started channelling the enduringly popular and intergenerationally relevant reggae fusion artist Shaggy. ' It wasn't me,' said prime minister Christopher Luxon, in an interview with Newstalk ZB's Mike Hosking. 'All I can do is the bit that I can do, which is the fiscal side of things. The Reserve Bank controls the monetary policy,' he said. 'It wasn't me,' said finance minister Nicola Willis, in a press release noting inflation remains within the 1 to 3% target band. 'The effect of council rates on inflation is a concern,' she said. 'That's why this government has also been clear in its call to councils to focus on the basics and keep rates under control.' Both politicians have a point. Inflation is the mercy of an array of local and international factors. The economy could be humming along, only for one of Donald Trump's brain worms to writhe the wrong way and prompt him to bomb the Middle East or raise tariffs to 150% on Gondwanaland. International dairy prices could spiral, sending the price of 400g of Westgold to roughly the equivalent of 400g of actual gold. Local councils might suddenly realise they've forgotten to properly maintain or upgrade their pipes for 50 straight years, forcing them to raise rates to stop town centres being drowned beneath spontaneously formed lakes of raw sewage. All these events are, to varying degrees, outside the control of the current government. Inflation is to a large extent the result of decisions the Reserve Bank made a year ago while weighing up an array of factors. But if Luxon and Willis aren't responsible for inflation, several of their past statements seem perplexing, starting with all the times they've directly taken credit for inflation. Similarly, Luxon has regularly taken credit for the Reserve Bank's decisions to cut the official cash rate, which are interlinked with inflation and similarly subject to the international economy. Some would see double, or at least inconsistent, standards in these statements. On the face of it, that's fair. But on a deeper level, they're in line with a consistent and principled approach from the government when it comes to interpreting economic data. It's routinely applied the same standard, whether it's to a wellbeing indicator or a GDP update. The method boils down to a single precept: if it's good, then the government did it, and if it's bad, it's someone else's fault. Take young people moving to Australia. Prime minister Chris Luxon has shrugged off the government's potential role in the return of the brain drain. Though some could point to the cancellation of dozens of public infrastructure projects and the subsequent slowdown in the construction sector as a factor in rising migration across the Tasman, he has eschewed that for other explanations, telling Ryan Bridge that stemming the outward tide comes down to delivering better education, more efficient access to healthcare, and improved public safety. In 2023, Luxon's deputy David Seymour said ' Kiwis [were] voting with their feet ' when roughly 24,000 New Zealanders left for Australia. When 30,000 people departed last year, he blamed the economic wreckage left by Labour, telling reporters it was down to a 'hangover from Covid'. When GDP goes up, it's the government's plan working. When it goes down, it's six years of economic vandalism under the last one. When food prices rise under Labour, it's Labour's cost of living crisis. When they rise under National, it's still Labour's lingering cost of living crisis. If something goes wrong, like the government failing to fund 13 new cancer drugs it promised to sick patients during the election campaign, it's Labour's fault. If something goes right, like 7,000 new state houses getting built, it's thanks to National even when they were funded by Labour. It's a bipartisan trend. For several long years after it was elected in 2017, Labour screamed the words 'nine long years' in response to any criticism from National. It's been critical over the latest inflation data, pinning the blame entirely on the government's economic management. When inflation went up while it was in power, it was a victim of the global inflation pandemic. Some of their criticisms have merit. Some of their self-aggrandisement is fair. But the overarching message from our politicians is that if something makes you sad, then it's the other guy's fault, and if something makes you happy, it's theirs. Maybe a more honest, responsible approach would be to admit that some things are beyond the control of politicians on a small island at the bottom of the south Pacific; that the weird conniptions of great and terrible global powers could make and break our economy at any moment; that the cost of living in New Zealand is far more reliant on the whims of Chinese parents than bike lane-loving councils; that we have only a small amount of control over our own affairs and chaos beckons at every corner. You may think that's impossible. 'You may think it's a ridiculous hope, borne of political naivety. But if you do, then I have a response you'll have to accept: this is all my editor's fault.
NZ Herald
7 hours ago
- NZ Herald
Neil Quigley denies conflict of interest as Reserve Bank chairman amid Waikato medical school deal
The remaining funding would be provided by the university and through donations. Construction was set to begin this year and would add 120 medical training places annually from 2028. Prime Minister Christopher Luxon announces the new medical school funding. Photo / Mark Mitchell National had campaigned in 2023 on a new medical school at the university but the promise was diluted through coalition negotiations with Act, which demanded a thorough cost/benefit analysis before committing funding. Established medical schools claimed funding more placements would be more cost-effective. Quigley had been heavily involved in the policy development and once described the school as being a 'present' to a National-led Government in a possible second term. Labour's health spokeswoman Dr Ayesha Verrall said questions should be asked if the deal was a 'you scratch my back and I'll scratch yours' arrangement between Quigley and the Government, given Quigley's role with the Reserve Bank. 'That does draw the independence of the Reserve Bank decisions into question,' she said. 'Releasing the costings for the medical school and how it stacks up against alternative options is important.' Former Reserve Bank manager Michael Reddell said he wasn't certain a direct conflict existed but questioned whether it explained Quigley's presence on the board. 'It's just a loose connection that no one understands why he's still in the role, why he was reappointed last year.' Neil Quigley leads the University of Waikato. Photo / George Novak Luxon, in his post-Cabinet press conference, said he expected any conflicts to be well-managed and felt comfortable with the arrangement. Quigley's role as chairman was separate to the Monetary Policy Committee, which sets the Official Cash Rate. Speaking to the Herald, Quigley dismissed the suggestion there was a conflict of interest. 'It's been news to me that people imagined there was a conflict between my role at the Reserve Bank and the university.' He described the bank as an 'evidence-based institution' and noted he was 'only one of nine members of the board'. Donations for new school worth 10s of millions Philanthropic donations had been central to the Government agreeing to co-fund the new medical school, Health Minister Simeon Brown saying donations and university funds would cover the remaining $150m. The donations had been pledged amid the Government's deliberations with some donors putting pen to paper to commit their contributions. Quigley wouldn't name any donors, citing privacy, but acknowledged some contributions were worth tens of millions of dollars. 'At the moment, they've done it on a private basis just to support me and we've given the Government an indication of who those people are and what sorts of commitments they've made.' He said he wasn't aware of any links donors had with the National Party, saying many sought to help address the country's shortage of medical professionals. 'There's a lot of philanthropically-minded people out there and some of them have just come to me and said, 'We want to support this project', it's not as if I've had to go find them.' Quigley suspected half of the $150m would be satisfied through donations with the rest to be covered by the university. 'At the moment, we're well on the way to the 50% of donations just with a relatively small number of large trusts and very wealthy individuals so we don't see that as particularly challenging.' Acknowledging comments from Finance Minister Nicola Willis that any extra costs wouldn't be covered by the Government, Quigley said the university was able to borrow any additional funds required. Early cost estimates for the new school had been much more expensive at about $380m. Quigley, who described that estimate as 'entirely hypothetical', said costs had been saved through plans to utilise existing health infrastructure like medical centres and GP clinics which weren't at capacity. Adam Pearse is the Deputy Political Editor and part of the NZ Herald's Press Gallery team based at Parliament in Wellington. He has worked for NZME since 2018, reporting for the Northern Advocate in Whangārei and the Herald in Auckland.
