Interest rates going, going, going…..

You don’t need to be an economist to work out that the New Zealand economy is weak.

However, just in case you live in a cave, here’s some stats for you courtesy of Nikko Asset Management.  The movement of goods (things we buy and sell) has experienced the worst decline in the last 20 years outside COVID.





Retail sales have experienced 8 consecutive negative quarters.  The last quarter was up by .5% which could be attributed to the new migrants coming into the country.  The size of a small city has arrived.  However, this is also slowing as news travels about the state or our economy.



Also, supporting the state of the economy is the reported job adverts.  You can see below that it’s the worst in 20 years outside of the GFC and COVID.



A lot of this data hasn’t changed since May when the Reserve Bank announced that interest rates would potentially stay high for longer.  However, who says there is no power in words.  The Reserve Bank has been intent on squashing inflation.  The data supported by the latest inflation figures of 3.3% is painting a bleak picture.

In the last official cash rate announcement, the Reserve Bank made 3 statements and omitted any wording around future hikes.

The three key statements were:

“The committee agreed that New Zealand’s restrictive monetary policy is reducing domestic demand and consumer price inflation”

“The committee is confident that inflation will return to within its 1-3 target range in the second half of 2024”

“The extent of this restraint will be tempered over time consistent with expected decline in inflation pressures”

Post the announcement, markets responded, and we have seen declines in wholesale rates since.  In other words, money is cheaper for banks.  The Reserve Bank will have thought that this would be the impact of their announcement.

Will it mean we see a cut on August the 14^th?  We think it may be a little premature given the market drops to date.  The Reserve Bank is very data driven and one of the other key words in the messaging is “expected decline”.  In other words, they expect to see inflation to keep dropping.  That can only be measured by data.

However, it does mean we are more likely to see cuts later this year as long as the inflation data supports it.

Offshore in the US, The Federal reserve (The Fed) also met. The US economy is in better shape than ours, but some recent data came in softer than expected. The Labour market created 114k new jobs vs and expectation of 175k and unemployment rose to 4.3% from 4.1%. There has also been mixed results reported from some of the large technology companies.

Despite this, The Fed held their cash rate rather than cutting. This, amongst other factors, could be why there was a sell off in the share markets. Markets potentially started to price in a more dramatic downturn with rates held.  The fed did indicate that with data supporting, it would look to ease (drop the cash rate). So it’s a similar story there

Important Reminder:

If you have just bought a home or are looking to buy a home, it is critical that you review your Kiwisaver.  Being in the right fund can be the difference between settling on a home or not. It can also make a difference of hundreds of thousands of dollars when it comes to what you retire with.  Example graphic below supplied by Booster.




Disclaimer: This newsletter is meant to be informative and engaging, hopefully not a cure for insomnia.  Please don't take this as personalised financial advice.  Discuss your situation with an Advisor.  This is where I need to say past returns are no guarantee of future returns.