Economic Week - August 10

by Nick Clark


OCR lower for longer as doves rule the roost
As universally expected the Reserve Bank has kept the Official Cash Rate unchanged at 1.75%.  However, more surprisingly it said it expects to keep it there through 2019 and into 2020 – longer than previously expected.  It also said that its next move could be up or down.
Although the economy has moderated, the labour market remains tight and inflation is rising towards the 2% target mid-point, which it sees as a welcome development.  The Reserve Bank’s previously rosy economic forecasts have been pared back but it still expects the economy’s momentum to pick up later in the year.
There are risks though, and the Reserve Bank has included low business confidence as a risk to employment, investment decisions, and economic growth.  It also noted that inflation could pick up faster if cost pressures pass through to higher prices and inflationary expectations. If both risks come to pass the Reserve Bank could be in for a tricky balancing act.
The announcement has been interpreted as the Reserve Bank becoming more ‘dove-ish’ and the NZ Dollar dropped sharply in response.
The OCR will next be reviewed on 27 September.

Commodity prices down in July
The ANZ World Commodity Price Index slid a further 3.2% in July following a 0.9% dip in June.   Of the 17 commodities in the index, 12 fell, three were unchanged and two lifted, with forestry the star performer.
Dairy prices were down 6.5% in July, not surprising considering the recent run of falls in the GDT auction.  Dairy prices are now down 7.1% compared to July 2017.  Meat and fibre prices were down 1.1% for the month.  Beef was down 1.3% (and down 12.4% year-on-year) but lamb was up 0.3% (and up 7.1% year-on-year).
The exchange rate had its ups and downs in July but ended up relatively unchanged meaning the NZ Dollar Index was down 3.1% for the month.
Compared to July 2017, the World Commodity Price Index was down 0.2% but with the exchange down for the year the NZ Dollar Index was still up 6.5%.

GDT unchanged
This week’s Global Dairy Trade auction broke its run of four consecutive drops, but only just, with the GDT Price Index unchanged compared to the last auction three weeks ago. 
Prices for the commodities were mixed, with four increases, three drops and two with no prices available.  Of the two biggest commodities by volume, whole milk powder eked out a 0.1% increase while skim milk powder edged down 0.3%.
The average selling price was US$3,136 while 34,076 tonnes were sold.
The GDT Price Index is down 9.1% on the same time last year.

Fewer sheep, more beef cattle
Beef+Lamb NZ’s 2018 Stock Number Survey showed a small fall for sheep but a rise for beef cattle.
As at 30 June 2018 there were 27.3 million sheep, down 0.8% on 30 June 2017.  There was an increase in hoggets (up 2.5%) but this was outweighed by a decrease in breeding ewes (down 2.1%).  Sheep numbers fell in the North Island (down 2.0%) but were up slightly in the South Island (up 0.4%).
Meanwhile, estimates for the spring lamb crop suggest 2018’s will be down 3.8% on last year’s to 22.8 million.  Despite good feed availability and breeding ewe condition, pregnancy scanning results fell short of many farmers’ expectations.
The number of beef cattle rose 1.9% to 3.7 million.  Beef cattle numbers were down slightly in the North Island (down 0.4%) but were up quite strongly in the South Island (up 7.4%).

Ag debt up in June
Agricultural sector lending grew by $700 million in June to reach $61.7 billion, according to the Reserve Bank’s monthly Sector Lending Statistics.  This is up 2.8% for the year and an acceleration from May’s annual increase of 2.5%.
This is the biggest monthly increase in agricultural debt since June 2015.  May and June often see larger than usual increases in agricultural debt due to requirements to purchase dairy company shares for the new season.
Despite the acceleration in annual growth of agricultural lending, at 2.8% it remains well below annual lending growth for housing (5.9%), personal consumer (6.0%), and business (5.7%).

Cereal yields down
The Arable Industry Marketing Initiative’s survey on Cereal Areas & Volumes as at 1 July 2018 showed average yields were down on last season for all six crops.  Unsold stocks of feed wheat were higher but feed barley stocks were lower than this time last year. Unsold stocks of milling wheat, malting barley, milling oats and feed oats were also down on last year.
Looking ahead AIMI also noted that the area sown in wheat and barley is expected to decrease 8% this season. Autumn/winter sowing has proven difficult in some areas, with the sown area being 15% down on intentions as at 1 April 2018. Some crops have been drowned out and some of these may not be re-sown. Wet conditions have also delayed sowing in some regions.

NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 9 August) continue to show most of the country around average for this time of year.  Coastal Marlborough and East Otago are wetter than usual.

Exchange Rates

NZ Dollar versus

This Week


Last Week (2/8/18)

Last Month (9/8/18)

Last Year (9/8/17)

US Dollar





Australian Dollar










UK Pound





Japanese Yen





Chinese Renmimbi





Trade Weighted Index





Source: Reserve Bank of NZ


Wholesale Interest Rates


This Week


Last Week (2/8/18)

Last Month (9/8/18)

Last Year (9/8/17)






90 Day Bank Bill





10 Year Government Bond





Source: Reserve Bank of NZ