In defence of bank’s forecasts (sort of)

Roger J Kerr at the interest blog has made a number of good points in this post.

I agree that long-term mortgage rates look a bit vulnerable – if I had a mortgage the 5 year rate at 6.49% would be pretty tempting.  Still, I’m no expert (I’m barely an amateur) at picking mortgage rates, so I wouldn’t do anything on this speculation.

Still, there is one thing I don’t agree with in this post – his determination to bag the retail banks.  Roger makes it sound like bank forecasters and the RBNZ have a massively different view.  However, both expect a sharp bounceback – the main difference is “timing”.  Fundamentally, retail banks expect it to be 6-12 months later than the RBNZ does.

This graph from ANZ illustrates the point well (found here under 12th March 2009):

anz-rbnz-forecasts

  • Miguel Sanchez

    I regularly bag Roger’s analysis over at the interest blog and I’m going to do it here too. The turnaround in market rates has nothing to do with traders “throwing away their own banks’ gloomy forecasts” (my experience is that, if anything, traders are even more willing than economists to believe the worst about our economy). It’s simply bowing to the fact that when it comes to the cash rate, what the RBNZ says goes, for the next 6-7 weeks anyway.

    By the way, bank forecasters and the RBNZ do have a massively different view – on how much help we will get from the exchange rate. The RBNZ is forecasting NZ growth to rocket ahead of the rest of the world, while at the same time the currency falls to record lows and stays there. I think they’re setting themselves up for disappointment on at least one front – although it’s hard to say how this will play into interest rate policy if their overriding concern is maintaining a margin over Australian rates.

  • “It’s simply bowing to the fact that when it comes to the cash rate, what the RBNZ says goes, for the next 6-7 weeks anyway.”

    You are 100% right. However, I think long-rates are a bit vulnerable still …

    “By the way, bank forecasters and the RBNZ do have a massively different view – on how much help we will get from the exchange rate”

    Very true – and that is a function of the Bank’s view that weak world demand will hammer commodities, and that our dollar follows commodities.

    However, both the Bank and retail bank’s have the same view about potential output – in reality the adjustment of the dollar merely means that the recovery is six months later in the view of retail banks. That is why I fundamentally see them as very similar – potential output is ultimately the same.