‘No Hike’ Call by ANZ

The ANZ Bank’s New Zealand economics team have formally shifted to a no hike call on interest rates for September.

While they say this is somewhat “late” relative to a market that is effectively now pricing in the same, the bank has been calling for a pause ever since the tightening cycle began, says Cameron Bagrie, chief economist. “Hence, the underlying spirit is nothing new, they note.”

This change of call also involves a couple of other tweaks:

• They expect the tightening cycle to resume in December. “While tempting to push the pause out into Q1 2010, this would see monetary policy remaining on hold for between six to seven and a half months. This does not sit well with us, global challenges aside. The economy certainly needs monetary policy to remain supportive, but a 3% OCR is still extraordinarily low in the first place.

• They now also see a stronger probability of a 50 basis point hike at some stage – though somewhat down the track. “We are still calling a bathtub with waves shaped cycle and expect the current down-leg to find a base and see improved momentum before year-end, though global palpitations make this difficult to envisage at present.

“Moreover, if the RBNZ accompanies a pause in September with a cautious tone (and there are certainly sufficient reasons to do so), there must be a counterbalance. There are still inflation risks to be mindful of, the yield curve is now flatter and three months out the global and local picture could look far better.

“Pausing may be the path of least regret at present, but it does not come risk free.

“So on the assumption that the global economy does not go through a double dip, pausing now implies more decisive action later.

“Recall that in January, the Governor came out with his “meaty chunks” comment in regards to what could happen. It may seem strange to be speculating of a 50 basis point move at some stage right now. But remember that three months ago, we seemed to be out of left-field talking about a pause in the cycle before year end!”

Like the RBNZ, the ANZ are in the process of finalising our quarterly forecasts. “One of the key take-outs is of an economy that is failing to kick-on. We have always had a pretty sombre view of 2010 and a more upbeat assessment of 2011.

‘The spirit of this remains intact, although at present we are inclined to shave 2011 down a tad, but we are only talking from 3.9% to around 3¾%.

“Suffice to say that the spirit of our bathtub with waves shaped cycle is going to remain the underlying assessment, as the global economy continues to deleverage.”

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