1 Comment 1 CommentAssistant Governor John McDermott told a meeting of the Bay of Plenty Employers and Manufacturers Association that inflation was expected to rebound in December and be at the bottom of the bank’s 1% to 3% target range.
New Zealand was being affected by international drivers, he said.
“There are several reasons for low inflation – both here and abroad. In New Zealand, tradeables inflation, which accounts for almost half of the CPI regimen, has been negative for the past four years,” he said.
“Much of the weakness in inflation can be attributed to global developments that have been reflected in the high New Zealand dollar and low inflation in our import prices. Strong net immigration and increased labour market participation have also boosted the supply potential of the economy, meaning that New Zealand has been able to grow at a robust pace without generating significant inflation.”
He said there also seemed to have been changes in the way inflation was generated in New Zealand and the bank would monitor developments an investigate any persistent changes.
More interest rate cuts would probably be necessary, he said.
“As described in the September OCR review, monetary policy will continue to be accommodative. Interest rates are at multi-decade lows, and our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range.”
McDermott said monetary policy had a long lag time, which was why the Reserve Bank had to target inflation a couple of years out. Lowering interest rates would not do much to change inflation in the near term, he said.
ASB’s economists said they expected a 25 basis point rate cut in November.
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The fact is that the OCR arrives at a point that mortgage rates actually rise!
This factor is due basically to bank 'margins', and from where banks source money which they can lend (mortgages), and one relevant source is from depositors funds.
We can work out the basics behind this?
So, as I have alluded to previously, let's see what effect this mortgage rate rise is going to have on house buyers...for a start.
Notice the red mortgage rates in the MRC in the last few weeks.
And, what happens in America has an overflow in NZ?
Watch this space.