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New Zealand Hikes Rate By 25 bps To 2.75%

Tyler Durden's picture




 

Yes, rates can be raised too. Just out from the Reserve Bank of New Zealand which just hiked rates by 25bps to 2.75%, as was largely expected.

The Reserve Bank today increased the OCR by 25 basis points to 2.75 percent.

 

New Zealand’s economic expansion has considerable momentum, and growth is becoming more broad-based. GDP is estimated to have grown by 3.3 percent in the year to March. Growth is gradually increasing in New Zealand’s trading partners. However, improvements in major economies have required exceptional support from monetary policy. Global financial conditions continue to be very accommodating, with bond yields in most advanced countries low and equity markets performing strongly.

 

Prices for New Zealand’s export commodities remain very high, and especially for dairy. Domestically, the extended period of low interest rates and continued strong growth in construction sector activity have supported recovery. A rapid increase in net immigration over the past 18 months has also boosted housing and consumer demand. Confidence is very high among consumers and businesses, and hiring and investment intentions continue to increase.

 

Growth in demand has been absorbing spare capacity, and inflationary pressures are becoming apparent, especially in the non-tradables sector. In the tradables sector, weak import price inflation and the high exchange rate have held down inflation. The high exchange rate remains a headwind to the tradables sector. The Bank does not believe the current level of the exchange rate is sustainable in the long run.

 

There has been some moderation in the housing market. Restrictions on high loan-to-value ratio mortgage lending are starting to ease pressure, and rising interest rates will have a further moderating influence. However, the increase in net immigration flows will remain an offsetting influence.

 

While headline inflation has been moderate, inflationary pressures are increasing and are expected to continue doing so over the next two years. In this environment it is important that inflation expectations remain contained. To achieve this it is necessary to raise interest rates towards a level at which they are no longer adding to demand. The Bank is commencing this adjustment today. The speed and extent to which the OCR will be raised will depend on economic data and our continuing assessment of emerging inflationary pressures.

 

By increasing the OCR as needed to keep future average inflation near the 2 percent target mid-point, the Bank is seeking to ensure that the economic expansion can be sustained.

 

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Wed, 03/12/2014 - 16:07 | 4540154 cougar_w
cougar_w's picture

Monetary terrorism.

Damn those Kiwis! Fire the laser!

Wed, 03/12/2014 - 16:07 | 4540155 Dr. Engali
Dr. Engali's picture

Crazy bastards are going to freak out the robots with moves like that.

Wed, 03/12/2014 - 16:09 | 4540172 cougar_w
cougar_w's picture

I won. By a millisecond, still counts. Best two out of three?

Wed, 03/12/2014 - 19:50 | 4540966 The Alarmist
The Alarmist's picture

Dude, they're just one more monetary move from McCainiac and Grahmnesty talking up the need to take them down.

Wed, 03/12/2014 - 20:17 | 4541050 max2205
max2205's picture

A 10% move in short rates...fucking somebody got hurt on that trade

Wed, 03/12/2014 - 16:39 | 4540266 furgheddubouddit
furgheddubouddit's picture

Hmmm....compared to the rate hikes in countries like Russia, India and Turkey, this one seems quite unimpressive.

Maybe instead of fighting inflation, NZ should just 'massage' the inflation data and make it magically disappear, like the FED does.

Wed, 03/12/2014 - 20:20 | 4541064 max2205
max2205's picture

Is NZ the first to recover?    Without using BS accounting?

Wed, 03/12/2014 - 16:08 | 4540160 101 years and c...
101 years and counting's picture

rates cant be hiked in the US.  shit, we stop printing money more than 2 weeks in the new normal, everything crashes.  ie, summers of 2010 and 2011.  

Wed, 03/12/2014 - 16:50 | 4540314 August
August's picture

>>>rates cant be hiked in the US.  shit, we stop printing money more than 2 weeks in the new normal, everything crashes.

How true!  Bernanke and Krugman heroically gave their utmost to help save America, but the dead weight of latent Austrian troglogytes dragged them into the Pit.

And now I see why ASB was offering those attractive yields on 1 year CDs last week.

Wed, 03/12/2014 - 16:08 | 4540161 bullionbaron
bullionbaron's picture

Price of fush 'n' chups must be rising!

Wed, 03/12/2014 - 16:11 | 4540178 McMolotov
McMolotov's picture

Inflationary pressures? Unpossible!

Wed, 03/12/2014 - 16:16 | 4540196 Dr. Engali
Dr. Engali's picture

They must have run out of iPads for dinner.

Wed, 03/12/2014 - 16:15 | 4540195 Yen Cross
Yen Cross's picture

  All the more reason to short aud into it's employment #'s print in Asia.

Wed, 03/12/2014 - 16:55 | 4540328 FiatFapper
FiatFapper's picture

Perhaps short AUDNZD but why short any other AUD pair when there's strong risk appetite and NZD rate hike adds to carry payoffs for commodity currencies?

Wed, 03/12/2014 - 16:26 | 4540230 Iam Yue2
Iam Yue2's picture

NZD: Hindered by a lack of liquidity.
2. Household debt high.
3. Possible Housing bubble.
4. Massive reliance upon China for exports.

Apart from that, everything is just great.

Wed, 03/12/2014 - 17:07 | 4540379 Dr Benway
Dr Benway's picture

Sounds like Australia. Except here the household debt is very high, there is a definite massive housing bubble, and the economy is being choked by an ever-expanding rapaciously fraudulent financial sector.

Check out my newly updated blog on the Australian market.

https://drbenway.blogspot.com

Wed, 03/12/2014 - 17:33 | 4540463 ForTheWorld
ForTheWorld's picture

You can't say that! It'll scare the kids in Sydney!

However, the delusion is strong with almost everyone I know. People (parents, friends, people at work) keep telling me to buy a house now because prices are going to keep rising. I keep saying I don't want to be in debt to a bank, I don't want to be in debt when work isn't assured long term, and I don't want to live in a place I don't like just so I have a place.

Apparently, those objections aren't good enough, so people keep saying I've got to get into the market, and I need to spend at least $400K to get something nice.

Wed, 03/12/2014 - 17:45 | 4540502 Dr Benway
Dr Benway's picture

Yup. You must buy now, because prices will go up forever, at a higher rate than incomes. Doesn't sound like a bubble at all.

Wed, 03/12/2014 - 19:05 | 4540783 ForTheWorld
ForTheWorld's picture

As sure as the Earth spins to make the sun appear to rise and fall, I just had a conversation with someone who said that he sees house prices at least doubling within the next 30 years. This will put the cheapest places in cities in Australia at a little over $600K, and the average at well over $1M. However, he also said that consumer purchasing power has fallen, and will continue to decline.

I asked him where the money will come from for people to build and purchase these places, but there was no answer forthcoming.

Wed, 03/12/2014 - 18:53 | 4540737 Catflappo
Catflappo's picture

@Iam Yue2

 

Exports to China make up circa 5% of NZ's total exports.

 

Is that "massively reliant"?

Wed, 03/12/2014 - 16:32 | 4540246 1835jackson
1835jackson's picture

NZ= A great canary in the coal mine. 

Wed, 03/12/2014 - 17:03 | 4540362 ForTheWorld
ForTheWorld's picture

The start of the 3rd paragraph of the main part of the article annoys me:

Growth in demand has been absorbing spare capacity...

It's like they're trying to sound intelligent and lend an air of science to their theories. In other words, people are spending money on shit they don't need.

Wed, 03/12/2014 - 17:13 | 4540403 FiatFapper
FiatFapper's picture

Bullshit baffles brains...

Wed, 03/12/2014 - 17:21 | 4540428 Cacete de Ouro
Cacete de Ouro's picture

NZ vacation tips:

North Island:
Bay of Islands very nice near Russell, Rotarua and Taupo nice, Tongariro National Park hike (volcanoe), Wellington great.
Not so pushed about Auckland.

South Island:
Marlborough Sounds in and past Picton, very nice. Nelson cute and marine park. Greymouth a bit grey, but on the way to glaciers (cool). Queenstown awesome, and Milford Sound also. Never made it to Dunedin.
Christchurch is ok, better if you know locals.

You will need 3 weeks at least for North and South Islands, driving gets a bit monotonous at times

Wed, 03/12/2014 - 17:58 | 4540543 New World Chaos
New World Chaos's picture

Also suggest the top and east of the Coromandel peninsula.

Freedom camping and parking lot sleeping are much harder to get away with than in America.  Would only try it in areas way off the beaten track.  There are cops whose sole purpose is to force the tourists to spend money.  The hostels are pretty good though.  I would also let ZHers crash at my place for free while passing through Auckland.

Wed, 03/12/2014 - 19:30 | 4540907 Catflappo
Catflappo's picture

One more tip - bring a heap of overseas cash as it won't buy much.

You can thank your local central bank for that...

Wed, 03/12/2014 - 17:52 | 4540518 fukidontknow
fukidontknow's picture

New Zealand is a shitty little fascist milk republic run by the banks for the banks.

Wed, 03/12/2014 - 18:08 | 4540567 New World Chaos
New World Chaos's picture

Fuck John Key

Wed, 03/12/2014 - 18:14 | 4540582 Seize Mars
Seize Mars's picture

Yes, ask Kim Dotcom.
They literally put down black helicopters on the guys front lawn because they didn't like people streaming Hollywood movies through his servers.
Nice!
Fuck New Zealand.

Wed, 03/12/2014 - 19:58 | 4540991 The Alarmist
The Alarmist's picture

No, they put black helicopters down on his lawn because they were under orders to deliver up Public Enemy #1 of one of the biggest lobbying groups in the US. DotCom should be grateful there are still judges interested in upholding the rule of law.

Wed, 03/12/2014 - 22:51 | 4541558 Seize Mars
Seize Mars's picture

Alarmist

Yes, absolutely I agree. As for judges upholding the law, I don't really know, I don't know the disposition of his case. All I know is that the biggest lobbying goup in the US, as you say, put black helicopters on a guy's lawn in a foreign country.

Fuck. That.

Thu, 03/13/2014 - 00:24 | 4541831 Tompooz
Tompooz's picture

The court upheld Kim Dotcom's rights as a resident and embarrassed the govt greatly by calling the spying that preceded the black helicopter action illegal. It was very good to see the independence of the NZ judiciary demonstrated.

That said, the "five eyes" cooperation must act as a strong deterrent to US persons seeking refuge here. There is an interesting case of an American, Harmon Wilfred, who has renounced his US citizenship. is now stateless and who cannot be deported as long as the US refuses to take him in.

Thu, 03/13/2014 - 12:22 | 4543375 Seize Mars
Seize Mars's picture

Thanks for the info.

Wed, 03/12/2014 - 17:56 | 4540538 Iam Yue2
Iam Yue2's picture

NZ Labour Party;

"Government housing failure forces up interest rates

Homeowners and first home buyers will feel today’s interest rate increase as the tightening of the noose, says Labour’s Finance spokesperson David Parker and Housing spokesperson Phil Twyford.

“The Government has been incapable of reining in the out-of-control housing market, leaving it instead to the Reserve Bank,” says Phil Twyford.

“Homeowners will have a sickening feeling in the pit of their stomach today, knowing there are several more increases in the pipeline that will add hundreds of dollars to monthly mortgage repayments.

“The Reserve Bank Governor said mortgage interest rates will get close to 7% by the end of the year, adding $233 to monthly costs on a $300,000 mortgage

“National has been quite happy to sit and watch first home buyers and ordinary Kiwi families either shut out of the housing market or financially squeezed, while property speculators and the big end of town clean up,” says Phil Twyford.

“Today’s rate rise follows five years of out-of-control house price increases which have seen the average Auckland house rise over 40% while National has been in government,” says David Parker.

“In Auckland, where prices are highest, it is not uncommon for people in the last few years to have taken on mortgages twice that size. As the year goes on those people are really going to feel the heat.

“Interest rates rises not only hurt homeowners they also put the squeeze on all businesses. Exporters suffer the double blow of a higher exchange rate and higher borrowing costs

“Yesterday the trade weighted index hit a post-float high, showing how tough it is for exporters outside of the primary sector.

“Low interest rates due to the global financial crisis were the only thing National could claim were working for homeowners.

“Now you can add rising interest rates to sky high prices in Auckland, extortionate rents in post-quake Canterbury and LVR lending restrictions that have shut first home buyers out of the market.

“This Government’s housing policy is in tatters."

Wed, 03/12/2014 - 21:34 | 4541297 Big Brother
Big Brother's picture

https://plus.dailyfx.com/fxcmideas/intraday-story.do?storyName=/dailyfxp...

Speculative sentiment index at 8.75 to 1 Shorts vs Longs. 

Long NZDUSD @ .8450.  It appeared that this pair could potentially breakout.

Target .8750 - .8800 and then the psychological .9.

 

Thu, 03/13/2014 - 08:41 | 4542350 Farside
Farside's picture

It's all about international capital flows. The Chinese are shifting their money out of China as fast as they can before TSHTF and one of the parking spots is the NZ housing market.

I know people who fly into the country on a Friday, spend the weekend buying as many houses as they can, and then fly out again on Sunday night. 3, 4, even 5 properties over the space of 2 days. Price is no object. There are even brand new houses that are 5 years old and nobody has ever lived in them. I've seen them myself. They are Chinese investment properties. Paper / towels over the carpets to stop them fading, curtains drawn... Just crazy.

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