OCR Remains on hold at 3.50%... possibly until 2017
Reserve Bank Governor Graeme Weeler cited his main reasons as:
- Global financial conditions remain very accommodative, and are reflected in high equity prices and record low interest rates.
- However, volatility in financial markets has increased since late-2014 following the sharp drop in oil prices, continued uncertainty about the global outlook and US monetary policy, and policy easings by a number of central banks.
- Growth remains robust in the US, but has slowed recently in China.
- World oil prices are about 50 percent below their June-2014 peak, ... [and] will further reduce inflation in the near term, at a time when global inflation is already very low.
- The domestic economy remains strong. Net immigration remains high. The housing market is showing signs of picking up, particularly in Auckland.
- However, there are a number of factors weighing on domestic growth, including drought conditions in parts of the country, fiscal consolidation, reduced dairy incomes, and the high exchange rate.
- The New Zealand dollar remains unjustifiably high and unsustainable in terms of New Zealand’s long-term economic fundamentals. A substantial downward correction in the real exchange rate is needed to put New Zealand’s external accounts on a more sustainable footing.
- Annual CPI inflation is expected to fall to around zero in the March quarter and remain low over 2015, reflecting the high exchange rate, low global inflation, and the recent falls in petrol prices.
importantly, "Our central projection is consistent with a period of stability in the OCR. However, future interest rate adjustments, either up or down, will depend on the emerging flow of economic data."
The market has interepreted the statement (incorporating Q&A with the Governor following the announcement) that rates will remain on hold until 2017. Broadly speaking:
- The justification for an earlier rate increase will be inflation.
- The justification for an earlier rate decrease will be dairy/exporting decline.
So the banks have wised up to the "back door float" and have raised their 6 month through 2 year interest rates. Take a look at the wonky yield curve below:
The longer term swap rates appear to have bottomed out and are on the slow increase again. This should result in less discounting of the 3-5 year rates and in due course, an increase in the published rates..
Rental Yields & Calculators