Analysts at Westpac noted that the Ready Reckoner is out and that it assesses how recent data will affect the RBNZ’s OCR forecast.
Key Quotes:
“The Ready Reckoner quantifies the impact of the various shocks that have hit the New Zealand economy since the last Monetary Policy Statement, in terms of the likely impact on the RBNZ’s Official Cash Rate forecast. The sensitivities represent our best estimate of how the RBNZ’s models will treat the various data surprises.
The Ready Reckoner is meant to be a pure read on the balance of recent data and is not a prediction of the RBNZ’s actions.
On this occasion, the Ready Reckoner suggests no change to the OCR forecast. However, that calculation excludes fiscal policy, for reasons explained below.
May MPS implied OCR forecast (Q3 2020): 2.2%
Net impact of shocks since May: 0bp
Ready Reckoner estimate of new OCR forecast (Q3 2020): 2.2%
Near-term inflation: +5bp
June quarter inflation was in line with the RBNZ’s May MPS forecast of 0.4%. However, non-tradables inflation was stronger than the RBNZ expected. Also, rising petrol prices mean the RBNZ’s September inflation forecast will be upgraded.
GDP: -10bp
March quarter GDP was 0.5%, compared to the May MPS forecast of 0.7%. June quarter GDP looks likely to be lower than the RBNZ’s forecast of 0.8% – we assume the RBNZ’s new forecast will be 0.7%.
Exchange rate: +10bp
The TWI has been averaging about 1% lower than the RBNZ’s previous forecasts.
House prices: -5bp
The RBNZ anticipated slowly rising house prices, but prices have in fact slowly fallen over the past three months. We assume the RBNZ will lower its house price forecast by 0.5%.
Labour market: 0bp
The unemployment rate ticked slightly higher to 4.5%, whereas the RBNZ expected it to stay at 4.4%. But in a wider sense the June labour market report was strong, so the RBNZ’s overall labour market assessment probably won’t change.
Government Budget: unknown
In the May Budget the Government announced approximately $2.4bn more spending than it was previously planning and changed the timing of forecast capital spending. This amounted to an additional fiscal stimulus of roughly 1% of GDP, hitting the economy in 2020/21. In the Ready Reckoner leading up to the June OCR Review, we judged that to be worth +30bp. The Treasury’s assessment was the same as ours. However, the RBNZ blindsided us by saying they assessed the new fiscal stance to be less stimulatory – ie, a negative on the Ready Reckoner. If the RBNZ persists with that assessment, the overall Ready Reckoner would be pushed into negative territory.
Total change: 0bp”
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