BNZ say that soaring dairy prices and record breaking employment growth are evidence NZ does not need lower rates right now
But the Reserve Bank of New Zealand will cut at the November 10 meeting anyway:
- Because they said they would
- Because even within this bullish data set there is no sign of impending CPI inflation pushing up to the Reserve Bank's target
- And, the RBNZ's forecasts will have been largely formalised before today's news so it will difficult to explicitly incorporate it into the forecast mix anyway
On the employment report:
- Extremely strong
- Regardless of any questions around the redesigned Household Labour Force Survey "by global and historical standards that's still a cracking pace of job expansion"
- Participation rate "now at a staggering 70.1%"
- New Zealand labour market is tight, and tightening
- Hiring intentions still high
- But, not creating nominal wage pressure ... The labour market will continue to have a minimal impact on inflation forecasts even as capacity constraints seemingly become more intense
On Dairy prices (overnight GDT auction results):
- Have continued (at an accelerating rate) their recent push higher
- The disposable income effect of this on the broader economy will be significant
- BNZ have just revised our milk price forecast up, again, to $6.00 per kg
- This compares with $3.90 for the season just past
- The massive head wind that the dairy sector has had on the economy is soon to become a tailwind
BNZ's RBNZ outlook:
- We can no longer justify, by any metric, the RBNZ cutting interest rates again in February
- Whether there is any sign of inflation or not, surely, even they must finally conclude that the "benefit" of cutting interest rates will be swamped by the "cost"
- Accordingly, we have now formally dropped the February cut that we had penciled into our forecast rate track
- We reiterate that we think the RBNZ will cut in November and leave open the possibility of a further reduction. We just doubt that the information set now being presented to it will allow that extra cut to occur.
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While you're down this far, some comments on the employment data and its implications for the Reserve Bank of New Zealand , this time from ANZ:
- the labour market has strong momentum and is tightening quite quickly
- Nominal wage growth remains low (real growth is far stronger) but we suspect that is set to change shortly
The case for the RBNZ cutting the OCR further is weakening with each passing day. But ...
- its forward guidance towards a November cut
- risk of the NZD spiking if it doesn't
- low headline inflation
- the reality that a cut likely won't be fully passed on
all mean that it will likely go. But the economy - though taking time to filter into inflation - says it shouldn't.
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I posted responses to the data earlier from 3 other banks, here:
