Monetary policy has been in the spotlight again of late as the search for the optimum monetary policy strategy to balance short-term interest rates and inflation against volatility in the exchange, rate draws comment from economists.
This week's ANZ/National Bank Market Focus hones in on comments made by Treasury officials in a paper to the Minister of Finance released last week.
The paper suggests that tighter fiscal policy could provide the ability for monetary policy to stay looser for longer. Cuts in government spending could be expected to see the Official Cash Rate (OCR) remain lower than it might otherwise for several years. This in turn would mean less pressure on the NZ dollar.
"All up, it looks like prepping for a tight Budget and fiscal restraint, which should help the Reserve Bank," the Market Focus report says.
The Westpac Weekly Commentary also picks up on the search for a better mix of monetary conditions. It suggests that monetary policy would be best complemented by "tough but necessary" work around improving NZ's productivity and flexibility.
"Bold cuts to Government spending, by reducing overall domestic demand, could allow a lower OCR and a lower exchange rate," it says.
While this would only work for a few years, it could allow the right environment for more "serious structural reform" to take place, it says.
The ASB Business Weekly highlights the release next Monday of building consent data for October, saying that with the housing market is in recovery mode and a relative scarcity of listings, the environment for building new homes is becoming more favourable.
"Dwelling consents have been gradually lifting from their lows, a trend we expect to continue over time," it says.
The release of new migration figures could strengthen this argument, with net inward migration coming in at 2,120 in October - around the average of the last six months.
The BNZ Capital Markets Outlook says: "It's clearly improved since being about flat last year, to be aiding population growth in no small measure," it says.
However, it suggests while improved, the numbers are "hardly strong" and probably close to peaking. But, the improved numbers are good for domestic spending, it says.
