Economist reaction to official cash rate decision, Fonterra's payout forecast
ANZ chief economist Cameron Bagrie on Fonterra, the RBNZ and the broader NZ economy. With special feature audio.
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Reserve Bank governor Graeme Wheeler's not-so-subtle change in language is clear, ANZ chief economist Cameron Bagrie says.
“The million dollar question is if the Reserve Bank will feel the need at some stage to follow through [and cut rates],” Mr Bagrie told NBR Radio's Andrew Patterson.
After a markedly weak CPI figure for the fourth quarter of 2015 – where price inflation turned negative, falling 0.5% – there was a lot of interest on Mr Wheeler’s OCR statement.
Despite calls that the Reserve Bank should drop the OCR, Mr Bagrie is not convinced.
“Net-on-net, it does not sound like a central bank that’s ready to cut rates,” he says.
“At the moment, I don’t think they have their figure on the trigger.”
Not all agree. HSBC chief Australasian Economist Paul Bloxham is expecting two more OCR cuts this year; one in the second quarter and another in the third.
“We believe that disinflation is being driven by much more than just oil prices and lower interest rates will be necessary for inflation to reach 2% on a sustained basis,” he says.
Dairy farmers feel the squeeze
The other big piece of economic news today was Fonterra slashing its payout to farmers by 45c.
Mr Bagrie says this is another economic signal of tough times.
But he says this year’s dairy payout is “largely irrelevant.”
“We’re most of the way through the season, we know cashflow issues are problematic.
“But the real issue is if we don’t start to see those dairy prices moving up, in the next two to three months, which at the moment is looking like a bit of a long shot, what is Fonterra going to be saying in May this year about the next season?”
JP Morgan analyst Tom Kennedy says this morning’s downgrade was “very much expected.”
“It is still bad news, though, in pushing prices further below the Reserve Bank’s estimate of break-even for the sector, and so will act as a major drag on exporter profitability in 2016," Mr Kennedy says.
NBR Radio
Thu, 28 Jan 2016
Thu, 28 Jan 2016
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Economist reaction to official cash rate decision, Fonterra's payout forecast
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