Over at NBR, Rob Hosking suggests that the RBNZ is saying a couple of things following today’s statement – a couple of things I believe they are not saying. Implicitly these are:
- Relative to June, the Bank wants a lower average official cash rate in the coming years (so a lower track, and potentially a cut to the OCR).
- The Bank feels that the “neutral” interest rate is lower (as this is how a level of the OCR goes from stimulatory to not stimulatory).
The reason for this view is the change to the last line of the statement between June and July – it has gone from having “stimulatory” in it to not having stimulatory in it. This is true, but I feel it is being taken out of context – note that in April stimulatory was also missing. Furthermore, the rest of the statement is banging on about how the Bank’s view is unchanged since June … a pretty clear signal that their view is unchanged.
In order to flesh out the argument Hosking states:
It suggests the OCR is going to remain lower for longer, especially when put alongside economic forecasts in the previous statement which said New Zealand’s capacity for economic growth is now lower than previously because of high debt levels and the need to rebuild from recent shocks, both economic and geological.
It is true that the RBNZ “lowered potential”. However, lowering potential implies that the Bank needs to do less to stimulate the economy – not more. All other things equal, lowering potential
growth output, or shrinking the output gap, suggests that rate will be HIGHER going forward – not lower.
Although I appreciate that it is difficult to read these statements, and that Hosking is right to try to read into slight changes in wording by the Bank – I feel that the interpretation he has given to today’s statement goes a little too far. In truth, the Bank has reiterated what they said in June – rates are staying at current levels for a while, unless Europe goes bang.