90 seconds at 9am: RBNZ rate hike nearer; Russian free trade deal; European deflation fear
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Bernard Hickey details the key news overnight in 90 seconds at 9am in association with the BNZ, including news the Reserve Bank of New Zealand is now widely expected to increase its Official Cash Rate (OCR) from 2.5% to 2.75 either next Thursday or on July 29. This follows relatively strong business confidence figures yesterday for May which showed inflation pressures building. Meanwhile, the Reserve Bank of Australia is expected to hold its OCR at 4.5% later today. It has already raised rates 6 times since October and has already cooled the economy. Meanwhile, the New Zealand Institute of Economic Research (NZIER) has released its consensus forecasts showing most economists see growth of around 3% in the next two years. NZIER itself sees a more subdued outlook of growth around 2% for the next two years. It sees no urgency for the Reserve Bank to hike interest rates. Overnight news emerged from the Beehive that New Zealand is in free trade deal talks with Russia, which Fonterra has welcomed. Also overnight, consumer confidence in Europe was weaker than expected and inflation was also lower than expected, Bloomber reported. Markets are increasingly worried about a deep European recession causing deflation and some are calling on the European Central Bank to print money to offset the deflationary pressure, the New York Times reported. Spanish bond prices fell (meaning yields rose) after Fitch downgraded Spain's sovereign debt rating to AA+ from AAA, Bloomberg reported. US and UK markets were closed for Memorial day. New Zealand should watch the European situation closely because the eurozone is New Zealand's third largest buyer of exports and a slowdown in Europe could cripple the rebound in the global economy.
Comments
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@waldentree Completely agree with you there, deflation for a few years which will put even more pressure on unemployment rates which spooks folk into saving. Almost 2 years later and credit is still contracting, cash as your rightly put it is king. the scary bit is that this has yet to hit aussie and nz. We all know its coming yet so far very little impact and growing complacency. I believe NZ net debt (incl mortgages) to gdp is right up there with the worst of them.
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@CyberAthletethefirst Hmm, all good arguments. If by printing in base you mean US FED 1.25+T then disagree; FED is not really expanding the money supply as the virtual dollars that they create are being used to buy debt (mostly derived from consumer mortgages). The net impact on actual cash in the streets, unlike Zimbabwe, is little. And in contrast the unemployment rate and strength of USD is causing deflationary effects with slow GDP growth (relative to the size of stimulus).
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@CyberAthletethefirst why hyperinflation? where do you see this?
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@waldentree why deflation?
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