Monthly Review - February

Friday 4th March 2016, 12:14pm

Monthly Summary February 2016

Interest Rates - Comments

RBNZ Governor Wheeler acknowledged that a lower OCR may be needed over the coming year, though they look to be on hold for now. OCR at 2.5% there is still scope for it to move lower with expectations of 50bps of cuts through till the end of the year, and for the OCR to remain on hold for most of 2017.

While additional OCR cuts from RBNZ could see mortgage rates fall, increases in global funding costs are pointing to higher rates.   We are still a savings deficient nation; however banks are less reliant on offshore mortgage rates than they were prior to the GFC.

Next OCR review is 10 March 2016.

Property Indicators   Record-low mortgage interest rates, tight dwelling supply and booming net immigration continue to support the housing market. Nevertheless, prices remain stretched relative to both incomes and rents, particularly in our largest city, where prices have started to recede. Attention is now shifting to the regions, which are playing catch-up. Households continue to exhibit leveraging-style behaviour with borrowing outstripping income growth.

Economic Check  The economy is performing well right here and now, and we generally expect respectable growth over 2016; New Zealand is more than dairying, there are other bright spots, and the economy has better structural foundations now.  The global scene; risks are elevated and weaker export prices (not just dairy) and higher global funding costs are a nasty mix for a commodity-dependent borrowing nation.

Other notes: Construction RBNZ bulletin states The Canterbury economy has proved resilient to the substantial destruction caused by the 2010 and 2011 earthquakes. The report, 'The Canterbury rebuild five years on from the Christchurch earthquake', provides an update on the economic progress made in the Canterbury rebuild.

Employment in construction has grown strongly, labour force participation in the region is higher than the rest of the country, and unemployment lower, the report’s authors say.

It is estimated that the total value of the rebuild will be $40 billion (in 2015 dollars). The rebuild is expected to continue for many years, with the reconstruction of commercial property yet to begin in earnest, anchor projects in the CBD still to be confirmed, and insurance claims yet to be settled.

As construction sector activity unwinds, other sectors will need to expand activity. In particular, activity in the tourism and education sectors remains substantially below pre-quake levels.

Information summarised from a mix of monthly reports from financial institutions.

This summary is of a general nature does not take into account your financial situation or goals and is not a personalised adviser service. Information is provided from sources that the author believes to be reliable; it is indicative and subject to change without notice.