RBNZ Governor Wheeler Speech on NZ Economy

RBNZ Governor Wheeler has given a speech this morning on New Zealand economy and growth prospect.

His key points were as follows:

· Prospects look promising for NZ econ expansion to continue

· Expects monetary policy to continue to be accommodative

· Projected policy settings to help inflation settle near mid target range

· International uncertainties considerable

· New Zealand economy performing well in many respects

· Growth stronger, inflation and unemployment lower vs trends over past 2 decades

· Overall expansion weaker than other post WWII expansions

· Per capita GDP growth has been slow

· Labour productivity growth disappointing

· House price inflation much higher than desirable

· House price inflation poses concerns for financial stability

· Exchange rate higher than econ fundamentals suggest is appropriate

· Prospects look good for continued strong growth over next 18 months

· Growth to be driven by construction, migration, tourism

· Supply disruptions due to Kaikoura earthquake unlikely to majorly impact growth

· Some rise in freight costs, construction cost inflation likely

· Low point for CPI inflation has probably passed

· Expects Dec Q CPI to confirm annual inflation moving back within target band

· New Zealand will enter 2017 with considerable political, econ uncertainties

· Greatest threat to growth is possible international political, econ developments

· Greatest domestic risk is significant correction in housing market

· Housing market correction could be triggered by developments offshore

· Many measures show house prices significantly inflated vs usual valuation indicators

· Low global interest rates have contributed to upward pressure on NZD$

· This trend may be finally turning

The NZD was little changed in response to Gov Wheeler’s speech.

Current indicative levels are:

NZD-USD 0.7150 / 0.7175
NZD-AUD 0.9565 / 0.9590
NZD-EUR 0.6645 / 0.6670
NZD-GBP 0.6645 / 0.6670
NZD-JPY 81.35 / 81.60

Here is the link to the complete speech:

http://rbnz.govt.nz/news/2016/12/growth-prospects-look-promising-in-face-of-international-risks

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