1 Dec 2014
Recap of RBNZ Wheeler speech - BNZ
FXStreet (Bali) - The Economics Team at BNZ sums up today's RBNZ Governor Wheeler speech at the conference on Inflation Targeting, noting the absence of new information that the market doesn't already know in terms of monetary policy or NZD levels.
Key Quotes
"The Reserve Bank is hosting a conference on Inflation Targeting this week. It begins today and carries on through until Wednesday. While this is principally a pointy-headed affair (co-hosted by the International Journal of Central Banking, no less), marking the 25th anniversary of the NZ central bank’s inflation targeting regime, be aware of the potential for any commentary associated with it to waft into the public domain."
"RBNZ Governor, Graeme Wheeler, has already got proceedings underway, with his opening speech to the conference first thing this morning. While this was very long on detail there was nothing new in it. It appeared to be, in essence, a grand summary of his speech material as Governor so far, largely for the benefit of the international attendees gathered at the conference."
"So there was the talk of the “unjustified and unsustainable” exchange rate; but that there was little the Bank could do about it; that fiscal discipline and improved private savings can help with this and other supposed imbalances (while failing to explain how low interest rates helps foster this response); that the LVR restrictions were “worth” around 25-50 basis points (while saying nothing of the weaker OCR pricing that the market imposed as an offset). We’re left with the same debates, in other words, albeit with the RBNZ digging in with regard to the way it sees things."
"A prime example was Graeme Wheeler today stressing the point that slack monetary policy can cause all sorts of distortions in economies and markets, including asset prices. Hey, he lived through it in the United States during the “noughties”. But when it comes to the local housing market he infers that its inflation is fundamentally a supply issue, and thus not much to do with the very low interest rates the Bank is engendering."
"Underlying this is the sense that the Reserve Bank feels entirely justified in running a low OCR for the foreseeable future (something that will look aided and abetted by annual CPI inflation probably dipping below 1.0% in not just Q4 but Q1 next year too, given the ongoing fall in domestic fuel prices). This would imply that the responses to the distortions which low interest rates help create will probably fall, in the first instance at least, upon non-monetary policies, including the new macro-prudential agenda. It’s going to be very interesting to watch how it all plays out."
Key Quotes
"The Reserve Bank is hosting a conference on Inflation Targeting this week. It begins today and carries on through until Wednesday. While this is principally a pointy-headed affair (co-hosted by the International Journal of Central Banking, no less), marking the 25th anniversary of the NZ central bank’s inflation targeting regime, be aware of the potential for any commentary associated with it to waft into the public domain."
"RBNZ Governor, Graeme Wheeler, has already got proceedings underway, with his opening speech to the conference first thing this morning. While this was very long on detail there was nothing new in it. It appeared to be, in essence, a grand summary of his speech material as Governor so far, largely for the benefit of the international attendees gathered at the conference."
"So there was the talk of the “unjustified and unsustainable” exchange rate; but that there was little the Bank could do about it; that fiscal discipline and improved private savings can help with this and other supposed imbalances (while failing to explain how low interest rates helps foster this response); that the LVR restrictions were “worth” around 25-50 basis points (while saying nothing of the weaker OCR pricing that the market imposed as an offset). We’re left with the same debates, in other words, albeit with the RBNZ digging in with regard to the way it sees things."
"A prime example was Graeme Wheeler today stressing the point that slack monetary policy can cause all sorts of distortions in economies and markets, including asset prices. Hey, he lived through it in the United States during the “noughties”. But when it comes to the local housing market he infers that its inflation is fundamentally a supply issue, and thus not much to do with the very low interest rates the Bank is engendering."
"Underlying this is the sense that the Reserve Bank feels entirely justified in running a low OCR for the foreseeable future (something that will look aided and abetted by annual CPI inflation probably dipping below 1.0% in not just Q4 but Q1 next year too, given the ongoing fall in domestic fuel prices). This would imply that the responses to the distortions which low interest rates help create will probably fall, in the first instance at least, upon non-monetary policies, including the new macro-prudential agenda. It’s going to be very interesting to watch how it all plays out."