Strong biz confidence pulls NZ interest hike expectations to Nov; NZD rises

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Strong biz confidence pulls NZ interest hike expectations to Nov; NZD rises

 Strong biz confidence pulls NZ interest hike expectations to Nov; NZD rises
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  • New Zealand business confidence rises in Q2 -- NZIER survey.
  • Labour shortages and supply-chain disruptions a major hurdle.
  • Rise in inflation likely.
  • The RBNZ asked to pull the rate hikes by the last quarter this year.

New Zealand's business confidence has shown a sharp rise in Q2, suggesting a strong economic recovery giving rise to sooner-than-expected rate hike.

The New Zealand Institute of Economic Research (NZIER) in its quarterly survey of business opinion pointed out that a net of 7% of firms surveyed expected general business conditions to improve compared with a 13% deterioration predicted in previous quarter.

Also Read: Will NZ households pay extra for consumer items amid growing inflationary burden?

A total of 10% people expected business conditions to improve, better than 8% of last quarter.  

Companies also said that their trading activity also picked up very strongly with a net 26% of businesses reporting increased demand in the June quarter, compared with just 2% expecting a rise in previous quarter.

However, labour shortages and supply chain disruptions have led to capacity pressures and may result in rising inflation due to demand-supply mismatch, the NZIER said. Companies also reported they were finding it more difficult than ever to hire skilled labour.

Also Read: ANZ expects RBNZ to hike rates in February 2022 after remarkable GDP numbers

Also Read: How Does The Reserve Bank Plan To Balance High Inflation and Low Interest Rates?

The increase in prices due to more demand and less supply points towards rising inflation, leading to expectations of interest rate hike by the Reserve Bank of New Zealand as soon as possible.  

Economists at Bank of New Zealand (BNZ) and ASB Bank have said that the inflationary pressures resulting from increased business confidence was enough to justify hastening of interest rates hike to November 2021.

About 60% of financial services companies expect interest rates to rise this year end, the economists said.

The Reserve Bank of New Zealand (RBNZ) had kept the interest rates unchanged in May monetary policy meeting but had said that it might consider increasing them by September 2022. However, since then the data that flowed has sparked a debate about hastening the interest rates hike, some say they should be this year.

Also Read: Will New Zealand’s Q1 GDP numbers have an impact on the monetary policy stance?

The NZIER results on the business confidence have further reinforced the need for a rate hike—ASB Bank says that even though they had pointed that rate hikes should happen by February 2022, this data points towards a rate hike even sooner.

The RBNZ is expected to meet next week for monetary policy announcement.

Most of the central banks all over the world are not expecting to raise interest rates till 2023. Australia's central bank, RBA left its cash rate at a record low of 0.1% in its today’s meeting, saying that the interest rates were likely to remain the same till 2024.

However, the only other country that is expected to raise interest rates is Norway.

The data confirmed that the only question that remains is by how much percentage will the rates rise? The question of when is pretty much clear, according to different economists.


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