Economic Week - November 15

by Nick Clark

OCR unchanged

The Reserve Bank has kept the Official Cash Rate unchanged at 1.00%, surprising commentators and markets – just as it did in August when it slashed the rate.
In its statement the Reserve Bank noted that employment remains around its maximum sustainable level while inflation remains below the 2% target mid-point but within its 1-3% target range. It concluded that recent economic developments do not warrant a change to the already stimulatory monetary policy.  Sounds pretty reasonable but the decision itself was still unexpected.
As I said last week recent economic data has been mixed and could have justified a call to hold the rate steady or to cut it. This decision was always going to be a line call but based on assumptions about what the Reserve Bank would do (rather than perhaps what it should do) most observers, including yours truly, were predicting a cut.  The resulting surprise wrong-footed the markets and caused jumps for wholesale interest rates and for the exchange rate.
The Reserve Bank also cut its short-term economic growth forecasts but is still forecasting a rebound in the medium to longer term as the economy responds to monetary stimulus delivered to date, increased government spending, and flow-on from high commodity prices and a lower exchange rate. 
As well as being justified on the weight of the data, the hold decision gives the Reserve Bank a bit more room to move if the economy doesn’t bounce back next year or if there is a shock to the system, say from the global economy. 
The next review of the OCR is not due until 12 February.  In the meantime, the Government’s response to calls, including from the Reserve Bank, to use fiscal policy to stimulate the economy will be revealed on 11 December when it issues its Half Year Economic Fiscal Update and Budget Policy Statement.  And on 5 December the Reserve Bank will announce its long-awaited decision on bank capital requirements. 
Both developments will likely influence the Reserve Bank’s next move on the OCR, as will the global economy and what other central banks are doing.

Food prices rising
Food prices fell 0.3% in the month of October 2019, according to Statistics NZ’s Food Price Index.   While that sounds good for consumers, food prices were actually up 0.6% after seasonal adjustment and the annual rate of food price inflation also accelerated to 2.5%.
Fruit and vegetable prices fell 4.7% during the month (with fruit up 1.4% and vegetables down 8.5%) but when seasonally adjusted they were 1.2% higher.  Meat, poultry, and fish prices rose 1.3%, with beef and veal up 0.3% and mutton, lamb and hogget unchanged.  Grocery food prices rose 0.1%, with bread and cereals up 1.6% but milk, cheese and eggs down 0.8%.
On an annual basis food prices rose by 2.5%.  This is up from 0.9% as recently as July. 
Fruit and vegetable prices were down 0.2% for the year, with fruit up 2.2% and vegetables down 1.9%.  Meat, poultry, and fish prices rose 4.2%, with beef and veal up 5.0% and mutton, lamb and hogget up 3.1%.  Grocery food prices rose 2.1%, with bread and cereals up 5.3% but milk, cheese and eggs up 1.5%.
The acceleration of food prices suggests that overall inflation as measured by the Consumer Price Index will come under upward pressure in the current quarter.

House prices jump
October saw a leap in house prices to a new record median price of $607,000, up 8.2% on October 2018, according to the Real Estate Institute’s Residential Market Statistics.
Median house prices for New Zealand excluding Auckland increased by 8.6% to a new record high of $520,000, while median house prices in Auckland increased by 0.8% to $868,000.
The provinces led the way, with the biggest annual increases in median sales prices recorded in Gisborne (up a whopping 37.1%), Southland (up 23.5%), Manawatu-Wanganui (up 20.9%), Marlborough (up 16.5%), Hawkes Bay (up 16.3%), and Otago (up 15.8%).  Taranaki posted the only annual decline (down 0.5%) while Canterbury was unchanged.   Six regions hit record high median sales prices. 
The number of sales across New Zealand in October decreased 4.0% from the same time last year, with REINZ suggesting the drop was due to the foreign buyer ban.
The median number of days to sell was 34, down 1 day on October 2018.
August’s large cut in the OCR translated to lower residential mortgage rates and this seems to have sparked a spring revival in the housing market.

Migration gain strengthens
There was an estimated 6,000 increase in net migration for the year ended September 2019 compared with year ended September 2018.
According to Statistics NZ’s latest International Migration Statistics there were 150,000 (± 1,500) migrant arrivals for the year, up 6% on the previous year.  Meanwhile, there were 95,300 (± 1,300) migrant departures, up 3%. 
The net result was an annual migration gain of 54,600 (± 1,800), up from 49,500 (± 200) for the previous year.

More Aussie visitors
Statistics NZ’s latest International Travel Statistics showed there were 261,800 international visitor arrivals in the month of September 2019, up 3,600 (or 1.4%) on the same month last year.  There were increases in visitors from Australia and Taiwan but there were declines from China and Malaysia.
For the ended September 2019 there were 3.9 million international visitor arrivals, up 94,300 (or 1.9%) on the year ended September 2018.  There were increases in visitors from Australia, the United States, and Taiwan, but visitors were down for most Asian countries, especially China and Malaysia.

Banking Survey closed
A big thank you to the more than 1,200 farmers who responded to Federated Farmers’ November Banking Survey.  Research First is now analysing the results for us which we expect to be able to release at the end of the month.  Watch this space.

NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 14 November) show the effects of recent rain across much of the country.  Many previously dryer than usual areas have returned to more normal conditions, while a number of areas, especially in the South Island, are now wetter than usual. 

Exchange Rates

Thanks mainly to the OCR decision, the NZ Dollar was up against the TWI and up against all of our major trading partners.  Its increase against the Australian Dollar was particularly large.



NZ Dollar versus

This Week


Last Week (7/11/19)

Last Month (14/10/19)

Last Year (14/11/18)

US Dollar





Australian Dollar










UK Pound





Japanese Yen





Chinese Renminbi





Trade Weighted Index





Source: Reserve Bank of NZ


Wholesale Interest Rates

Over the course of the week 90 Day Bank Bill interest rate rose 14 basis points while the rate for 10 Year Government Bonds rose 12 basis points.  The OCR decision had a particularly big impact on the 90 day rate.



This Week


Last Week (7/11/19)

Last Month (14/10/19)

Last Year (14/11/18)






90 Day Bank Bill





10 Year Government Bond





Source: Reserve Bank of NZ