Market Update

September 2017

The latest statement from the Reserve Bank reported that the Official Cash Rate remains on hold at 1.75 percent.

Governor Graeme Wheeler said that CPI inflation was down in the June 2017 quarter (at 1.7%). It is, however, expected to be variable in the near future, in part due to movements in tradables inflation. House price inflation continues to moderate because of constraints around housing affordability, credit conditions and loan-to-value ratios. However, a resurgence in prices could be on the cards, due to the construction sector’s resource constraints as well as population growth.

NZ Herald’s Business Editor Liam Dann said that this latest announcement from the Reserve Bank would be interesting to buyers wanting to fix their mortgage rates. "If you are considering a fixed rate mortgage it may remove some of pressure to fix long," said Liam. 

In other news, headline inflation, which had increased across countries such as China, is now expected to drop. This is because the inflation increases seen over the past year was due to increases in the cost of food and oil. So with the effects of higher fuel and food prices predicted to dissipate early next year, annual headline inflation is expected to fall below the bottom of the target range and then return to the target midpoint.  

Wheeler noted that GDP has been lower than expected. However, growth is predicted due to the accommodative monetary policy, elevated terms of trade and population growth, among other factors. GDP’s annual growth is expected to be around 3.4% over the next couple of years.

Monetary policy will remain accommodative to support strengthening GDP growth and rising capacity pressure. “This support is needed for headline inflation to move towards the target midpoint over the medium term,” he said. A weaker US dollar has resulted in the trade-weighted exchange rate rising. In order to increase tradables inflation and deliver more balanced growth, a lower NZD is needed.

This statement from Wheeler will be his last: he is due to step down from the role late next month. This comes just three days before the general election. Deputy-governor Grant Spencer will step into the role for six months, after which there will be a long-term replacement. The next announcement from the Reserve Bank will come after the election, on 28th September.

New Zealand’s new migration record

Recent statistics around New Zealand’s number of migrants have shown that a new record was reached in the past year. Net migration (which means arrivals minus departures) was recorded at 72,400 from the July 2017 year, which is the highest it has ever been. In this 2017 year, there were 132,100 migrant arrivals and 59,700 migrant departures. To put this in perspective, it’s been estimated that New Zealand’s gain from net migration equates to 15 people per 1000 population.

Other reported findings saw both increases and decreases in the number of migrants from Commonwealth countries. The number of migrants from India went down by 3,900, believed to be related to a decrease in student migrant arrivals. The biggest increase in net migration was from the United Kingdom, up by 2,400. The second biggest increase came from South Africa, which was up by 1,600.

These figures are, of course, dependent on who is deemed a migrant, which is based on traveller passenger cards. In a recent statement, the population statistics senior manager of Statistics New Zealand, Peter Dolan, said that while most migrants arrive on either student or short-term work visas, the classification applies regardless. “It’s how long they stay in New Zealand, not their visa type, which affects whether they are counted as long-term migrants or short-term visitors,” said Peter. If the person’s visit is longer than that of a short-term traveller (more than a year), they become known as a migrant for statistical purposes. This classification system can be flawed, as it is based on people’s intentions and declarations. Because of this, some experts state that net migration could actually be underestimated by as much as 8000 people a year. Economist Mieke Welvaert said her team at Infometrics had analysed Statistics New Zealand data of what people stated on their arrival cards. "It turns out that when there are lots of employment opportunities, tourists get new visas and effectively become migrants,” said Mieke. "We had this problem back in 2003 when at-the border measures under-measured net migration by 18,000 people."

But it may not be a big problem yet. Peter Dolan said that currently the country’s migration rate is similar to the one Australia had back in 2009. “Our current net migration rate is high by New Zealand standards, but historically it has fluctuated more than other countries,” he said.