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RBNZ may be pressured to hike rates again in early 2015 - BNZ

FXStreet (Bali) - Craig Ebert, Senior Economist at BNZ, notes that early next year the RBNX may again be pressured to hike rates, adding that the RBNz remains worried that the NZD has not fallen as much as one would expect given the falls in dairy price auctions.

Key Quotes

"Come the 29 January OCR review, for example – with the possibility of even stronger economic confidence (post the clear-cut election result), a resurgent housing market, relentlessly high immigration, a pert Q4 CPI at hand (as some imported inflation shows, for a change), inklings of wage inflation, rebounding dairy prices and a galloping US economy – then the pressure would be right on the RBNZ."

"As for the monetary policy implications of Wheeler’s “speech” last week they seem mixed. On the one hand, the speech highlighted a clear concern about dairy prices and, by implication, the industry’s income, profitability and balance sheets. This is entirely appropriate."

"And this is not merely because the $5.30 milk price forecast Fonterra has lowered its sights on is barely breakeven for the average dairy farm (and probably insufficient for some new entrants with greater-than-average debt). The bigger point is that to get even $5.30 there needs to be a substantial rebound in international dairy prices and/or a further strong fall in the currency. There is still time for this to happen, but no guarantees that this will occur."

"Dairy is to New Zealand what iron ore is to Australia, and oil is to Canada. So the fact the currency has failed to fall anywhere near as much as its representative commodity price has, is obviously a cause for consternation. While there is sometimes a lagged response in this relationship, the interim can be painful."

"As for the latest on dairy prices note that this week’s GDT auction is scheduled not for the usual Wednesday morning, but Thursday morning (New Zealand time, now GMT +13:00 hours). We don’t have a strong view on price direction at this event, let alone quantum of change. But the result will be important, whatever it is (again, knowing that prices need to begin bouncing if the $5.30 milk price forecast is to look attainable)."

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