In the wholesale interest rate market, the March 90-day bank bill futures, which expire on the March 12, are trading at 5.71%, slightly below the Reserve Bank’s 5.75% Official Cash Rate (OCR).
That suggests the market thinks there’s a slight possibility of a rate cut this week. But looking out to the June 90-day bank bill futures which are trading at 5.39% and the market is saying there will be a cut either before or on June 5 when the next MPS is due and that a further cut will be coming not long after that. The September and December futures are trading at 5.22%.
Yet the economists at only one of the five major home lending banks reckon there will be any change in interest rates this year.
Westpac changed its view only in the last week, says economist Nick Tuffley, and is now picking the OCR will fall to 5.5% in June.
"Pretty much since the beginning of the year, the risks have been shifting down bit by bit," Tuffley says.
The consensus forecasts of economic growth among New Zealand’s trading partners, a key measure the Reserve Bank watches, have shifted from 3.6% in the middle of last year down to 2.8%.
Coupled with the strength of the New Zealand dollar, particularly against the Australian dollar, that should mean lower export earnings this year, Tuffley says.
New Zealand’s rate of growth is likely to shift down from about 4% last year to between 2% and 2.5% this year and that should be sufficient to quell the inflationary pressures evident at the moment, he says.
ASB Bank chief economist Anthony Byett says it may be no accident that the major home lenders are tending to view the world differently from those in the wholesale interest rate market.
The major retail banks "are seeing firsthand the solid spending that’s going on, particularly in the housing market," he says. "If you were looking at the domestic factors alone, you would probably be putting rates up."
