13 May 2014
RBNZ Financial Stability Report eyed - BNZ
FXStreet (Bali) - The RBNZ Financial Stability Report (21 GMT) is the main focus in today's Asian calendar ahead of Thursday's NZ budget, with Economists at Bank of New Zealand anticipating that most of today's content is likely to have been well outlined already in recent speeches by the RBNZ.
Key Quotes
"Most of its content would seem to have been well outlined already in recent speeches by Reserve Bank top brass. Still, it will be worth perusing for any further nuances, as per usual."
"Governor Wheeler, in his talk last Wednesday, highlighted the importance of the dairy industry, and its export prices, to economic deliberations. In doing so, he took the opportunity to amp his discomfort with the supposedly “overvalued” currency (to the point of talking FX intervention). In this regard, the Governor would have been pleased to see the NZ dollar settle down a bit hence."
Wheeler also covered off the FSR stalwart, farm debt, but with a less-concerned air. It helps that farm debt is not accelerating as it has done during previous times of cyclical bounty. Still, the Governor did attach the warning that it’s not just the household sector that needs to budget for interest rates moving off their recent extreme lows. In the end, New Zealand’s agriculture debt is almost two and a half times what it was 10 years ago.
"Deputy Governor Grant Spencer spoke about housing on Friday. That the media coverage was all about his suggestion LVR restrictions could come off before the end of the year just goes to show the nation’s ongoing obsession with the housing market. We took Spencer’s LVR comments more as a warning to not expect any relaxation anytime soon. Indeed, with the RBNZ feeling hamstrung, by the high NZ dollar, in being able to lift the OCR as much as it would probably prefer, it might feel forced into keeping the LVR caps in place for longer, lest domestically driven inflation picks up even more than is already projected."
"What seemed lost in the media coverage of Spencer’s speech was his focus on the boom in net immigration, and net pressure on the economy and inflation inferred. We have all been surprised by the degree to which immigration has swung from next to nothing over 2010-12 to very high over 2013 (it was the main source of the most recent lift to our GDP growth forecasts). It has been to roughly double New Zealand’s population growth, from below-average rates over 2010-12 to above-average. The March Monetary Policy Statement looks to have under-forecast net immigration for 2014 and assumes it will fade in 2015/16. Spencer rightly recognises the upside risks around this.
However, we think the Deputy Governor is overestimating the bang for its buck the Reserve Bank will get this OCR cycle. Contrary to what he inferred in his speech last Friday, the proportion of New Zealand’s mortgage book that is of 2-year plus duration was no higher over the period 2003-07 than it is now. And while it’s true that most mortgages are currently on either floating or relatively short-term fixed rates this is rapidly changing, as folk jump off floating rates into terms in and around the “competitive” 3-year mark. At the rate things are going it."
"Might be a matter of only months before the proportion of New Zealand’s mortgage book fixed for a term of one year or less (including floating) will be below that seen during the start of the 2003-07 OCR cycle."
Key Quotes
"Most of its content would seem to have been well outlined already in recent speeches by Reserve Bank top brass. Still, it will be worth perusing for any further nuances, as per usual."
"Governor Wheeler, in his talk last Wednesday, highlighted the importance of the dairy industry, and its export prices, to economic deliberations. In doing so, he took the opportunity to amp his discomfort with the supposedly “overvalued” currency (to the point of talking FX intervention). In this regard, the Governor would have been pleased to see the NZ dollar settle down a bit hence."
Wheeler also covered off the FSR stalwart, farm debt, but with a less-concerned air. It helps that farm debt is not accelerating as it has done during previous times of cyclical bounty. Still, the Governor did attach the warning that it’s not just the household sector that needs to budget for interest rates moving off their recent extreme lows. In the end, New Zealand’s agriculture debt is almost two and a half times what it was 10 years ago.
"Deputy Governor Grant Spencer spoke about housing on Friday. That the media coverage was all about his suggestion LVR restrictions could come off before the end of the year just goes to show the nation’s ongoing obsession with the housing market. We took Spencer’s LVR comments more as a warning to not expect any relaxation anytime soon. Indeed, with the RBNZ feeling hamstrung, by the high NZ dollar, in being able to lift the OCR as much as it would probably prefer, it might feel forced into keeping the LVR caps in place for longer, lest domestically driven inflation picks up even more than is already projected."
"What seemed lost in the media coverage of Spencer’s speech was his focus on the boom in net immigration, and net pressure on the economy and inflation inferred. We have all been surprised by the degree to which immigration has swung from next to nothing over 2010-12 to very high over 2013 (it was the main source of the most recent lift to our GDP growth forecasts). It has been to roughly double New Zealand’s population growth, from below-average rates over 2010-12 to above-average. The March Monetary Policy Statement looks to have under-forecast net immigration for 2014 and assumes it will fade in 2015/16. Spencer rightly recognises the upside risks around this.
However, we think the Deputy Governor is overestimating the bang for its buck the Reserve Bank will get this OCR cycle. Contrary to what he inferred in his speech last Friday, the proportion of New Zealand’s mortgage book that is of 2-year plus duration was no higher over the period 2003-07 than it is now. And while it’s true that most mortgages are currently on either floating or relatively short-term fixed rates this is rapidly changing, as folk jump off floating rates into terms in and around the “competitive” 3-year mark. At the rate things are going it."
"Might be a matter of only months before the proportion of New Zealand’s mortgage book fixed for a term of one year or less (including floating) will be below that seen during the start of the 2003-07 OCR cycle."