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The Markets

Market absorbs Reserve Bank shock

The New Zealand sharemarket tumbled and then recovered from the shock of an unforgiving Reserve Bank of NZ defying predictions and increasing the official cash rate to its highest level in 14 years.

Wednesday, April 5th 2023, 6:37PM 1 Comment

by BusinessDesk

The S&P/NZX 50 Index fell from 11,914.59 to a close of 11,866.83 points when the bank announced it was increasing the official cash rate (OCR) 50 basis points to 5.25% – a level last seen at the end of 2008 – because of persistent inflation. The market expected a 25 basis points rise.

The index was finally down 31.72 points or 0.27% after a rally in the last half-hour matching session. It had fallen more than half a percent in the afternoon.

There were 39 gainers and 79 decliners on the main board, with 28.65 million shares worth $98.13 changing hands.

The OCR has risen inexorably from 0.25% in March 2020 as the bank battled to tame inflation. It’s not over.

Inflation is still too high and persistent, and employment is beyond its maximum sustainable level, the bank said. And the recent severe weather events in the North Island have led to higher prices for some goods and services.

The highest OCR was 8.25% in July 2007 during the global financial crisis and it had not been above 3.5% since March 2014 before the bank began the first of its 11 increases in October 2021.

Greg Smith, head of retail for Devon Funds Management, said the latest increase by the Reserve Bank was “a negative surprise. It has decided inflation is the primary reason to go hard, while other central banks are talking up the need to wait and see the lag impact of the interest rate rises on the economy.

Take that

“Our bank has stuck to its aggressive form book. It was one of the first globally to raise rates and it looks like it could be one of the last to end the increases. I thought the latest OCR rise would be lower.”

Smith said the NZ economy contracted in the December quarter when people were expecting an expansion; businesses are not confident; the job market is not as tight as it was; the export market is under pressure if you consider Fonterra’s outlook; the property market is in reverse and having a wealth effect; and consumers are cash strapped.

ANZ headlined its market note: “Take that.” The New Zealand and Australian Reserve Banks continue to choose startlingly different paths in the face of very similar inflation numbers (6.8% and 7.2%) respectively.

ANZ is now predicting an OCR peak of 5.5%, with three cuts late next year. The latest inflation rate will be known on April 20 when the March consumer price index is released.

Trading was muted, with few major movements. Port of Tauranga gave up a strong gain the day before by falling 16c or 2.52% to $6.19. Fletcher Building declined 7c to $4.45; Heartland Group shed 7c or 4.32% to $1.55; Serko decreased 14c or 5.86% to $2.25; Synlait Milk was down 5c or 2.26% to $2.16; and Sanford shed 10c or 2.44% to $4.

Meridian Energy, down 1c to $5.30, has negotiated a flexible supply agreement with NZ Aluminium Smelters for the remainder of the year and next year. It means Meridian can ask for a reduction in the consumption of electricity at the Tiwai Point smelter by up to 50MW, taking pressure off the network during times of a hydro shortage or outages.

Other energy stocks Manawa was down 5c to $4.85, and Mercury declined 3c to $6.27.

Arvida Group, down 1c to 97c, told shareholders in an investor newsletter that the retirement sector was exposed to the slowdown in the housing market, increasing cost of construction and continued lag in sector funding.

However, demand for quality retirement living and aged care remained strong with the dynamic of an ageing population and demand fundamentals remaining unchanged.

Arvida said the $902m Ryman capital raise, the third largest on the NZX, had a significant impact on share trading across the sector. Arvida has fallen from $1.72 over the past 12 months.

Oceania Healthcare increased 3c or 4.17% to 75c, and Ryman Healthcare was unchanged at $5.38.

Spark, unchanged at $5.03, outlined its three-year strategy to the market, which includes investing $250-$300m in data centres and $40-$60m in 5G and opening up new mobile and broadband opportunities, as well as developing new high-tech digital solutions.

Other decliners were Mainfreight shedding 50c to $70; Winton Land falling 10c or 5% to $1.90; Move Logistics decreasing 3c or 3.06% to 95c;  ikeGPS down 3c or 3.53% to 82c; and Seeka giving up 8c ort 2.68% to $2.90.

Retailers Michael Hill was down 3c or 2.78% to $1.05, and Hallenstein Glasson declined 7c to $5.69.

Amongst the gainers, Restaurant Brands increased 14c or 2.15% to $6.65; MHM Automation added 2c or 2.17% to 94c; and AFT Pharmaceuticals improved 5c to $3.45.

Tags: Market Close

« NZ market perks up as Australia's central bank holds ratesAll quiet on the sharemarket front »

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Comments from our readers

On 6 April 2023 at 7:22 am Pragmatic said:
Whilst the RBNZ’s “pump & dump” approach to monetary management will be the topic of future conversations, I’m intrigued when listening to ‘experts’ who claim that we are “nearing the end of the rate cycle”.

To be clear: there isn’t a “rate cycle” per se. The RBNZ has a single objective (reinforced by the RB Act) to return inflation to the 1%-3% band. Whilst inflation remains outside of this band, the RBNZ will use the only tool available to them - the OCR.

My prediction: inflation will remain stubbornly high (partially due to offshore influences beyond our control), forcing continued rate rises - until politicians declare that the RB Act may require revision.

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.14 6.79 6.65
ASB Bank 8.64 7.14 6.75 6.39
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
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Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.14 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.74 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.89 6.55 6.35
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.74 7.29 6.59
SBS Bank Special - 7.14 6.69 5.99
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.89 7.35 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.75 6.65
Median 8.64 7.21 7.29 6.65

Last updated: 20 May 2024 10:01am

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