Householders such as myself with mortgages partly floating will be happy at the news today that the OCR is unlikely to be jumping up a huge amount over the next two years. This means that we are likely to see maybe .5 – 1% increase this year and maybe the same next year as the economy stabilizes and becomes stronger. In return for this lower interest rate OCR it is intended that we lower our household debt, pay some of that mortgage off and then when that level of debt is low enough the spending will start again signaling the start of our more robust economy. – I cant wait for that to happen, i’m sick of the recession and slow and painful business situation we are in.
The Reserve Bank Governor Alan Bollard flagged a brighter future for this year as he kept the official cash rate at 3 per cent, as expected, and says he needs to see a “more robust” recovery before his starts tightening again.
On that news though the New Zealand dollar climbed more than half a U.S. cent to 77.12 US cents immediately after Bollard said forward-looking indicators had firmed and trading partner activity picked up amid rising prices for locally produced raw materials. Good time to import some things and sell them here.
In a statement which economists said was slightly more upbeat than a month ago, Reserve Bank Governor Alan Bollard said New Zealand’s economic climate had not changed substantially since December, with the economy contracting in the third quarter of 2010 and signs that retail spending over the Christmas period was weaker than in 2009.
However Dr Bollard signalled that there were further signs that the economy would soon begin to gather speed, with strong growth in Asia boosting export prices, corporate investment increasing and ”tentative” signs that the housing market had stabilised after weakening at the end of last year.
In December the Reserve Bank had predicted further falls in house prices.
”Forward indicators of activity have firmed somewhat. Trading partner activity continues to expand and New Zealand’s export commodity prices have increased further. Within New Zealand, business confidence, across a range of industries, has picked up and imports of capital equipment have grown.”
While inflation hit 4 per cent last year, the spike was because of the increase in GST, with underlying inflation ”comfortably” inside the 1-3 per cent Reserve Bank target.
Economists expected the bank to keep the OCR on hold today, with interest in the Dr Bollard’s statement on the economy used to predict the bank’s thinking on possible future moves.
Before today’s statement, most economists were split between the Reserve Bank beginning to increase the OCR in June or September.
Dr Bollard said interest rates would increase over the next two years, but would be kept low until the pickup was stronger.
”As noted previously, while interest rates are likely to increase over the next two years, for now it seems prudent to keep the OCR low until the recovery becomes more robust and underlying inflationary pressures show more obvious signs of increasing.”
ASB chief economist Nick Tuffley said the statement was ”a little upbeat” on the signs the economy would recover from the unexpected slowdown in the middle of last year.
Signals that the bank was comfortable with the threat of rising inflation meant ASB still expected the OCR to be left on hold until September, and the middle of the year at the earliest.
”Importantly, the [Reserve Bank’s] comfort with inflation will reinforce the [bank’s] decision to stay on hold for a while.””The statement did accentuate the signs that the economy is returning to growth after the unexpected soft patch in the middle parts of last year, and that the external environment remains supportive of recovery (even as household demand remains fragile),” Mr Tuffley said.