The Reserve Bank has now released in full the Graeme Wheeler speech on monetary policy settings that was previewed yesterday.
Wheeler essentially repeated his view from the February 9 Monetary Policy Statement that the bank saw the risks of the Official Cash Rate being hiked or cut next as evenly balanced. He had said back in February the bank had a neutral stance on what it would do next.
"In effect, there is an equal probability that the next OCR adjustment could be up or down," Wheeler said in a speech to the Craigs Investment Partners Investor Day in Auckland.
"We consider the balance of risks for the global outlook to be downside. For the domestic economy, there is some potential upside for output growth if migration and commodity prices turn out to be stronger than forecast, but the risks around inflation look balanced," he said.
“This means that if the economy were to develop in line with the bank’s economic projections, which are based on several assumptions, then the OCR would remain at its current level over the next two years."
That is in line with the bank's OCR forecast track in its February MPS when it did not see a hike until late 2019, and then only one hike of 25 basis points.
'Donald Trump is a worry'
Wheeler repeated that the greatest source of global uncertainty was Donald Trump's 'America First' policy platform.
"Although a substantial US fiscal stimulus could be positive for growth in the global economy, the prospect of a marked increase in protectionism – coming at a time when global trade is growing slowly and trade disputes are increasing – would be expected to have sizeable impacts on the global economy," he said.
Wheeler described the greatest source of uncertainty domestically as the possibility that imbalances in the housing market might deteriorate.
"Fortunately, house price inflation has moderated substantially in recent months, but it’s too early to say whether this moderation will continue," Wheeler said.
“Another risk is that the exchange rate remains higher than projected in the MPS, suppressing tradables inflation and net exports. As we indicated in the MPS, whether monetary easing would be required to offset this would depend on the factors driving the exchange rate (e.g. weaker global growth, higher commodity prices) and how domestic capacity pressures were changing," he said.
“Our assessment is that the risks around the OCR are equally weighted.”
Elsewhere, Wheeler also said there were risks of higher-than-forecast migration.
"Although departures remain low, arrivals have continued to increase with arrivals by migrants on work visas being particularly strong in recent months," he said.
Critical social housing report revealed
An internal review of the Government's social housing reform programme that was obtained by RNZ and released this morning found the reforms were fragmented and not robust.
The review by Leonie Freeman for Treasury was only obtained after RNZ's Todd Niall appealed to the Ombudsman. The report finished in December 2015 found there was no coordinated goal or robust system in place to deliver the 65,000 Income Related Rent subsidy places by mid 2018. Here's the full 135 page report, as published on the MSD's website.
Freeman and co-writer Michael Mills, an executive director at Martin, Jenkins and Associates, identified concerns about leadership and governance within the social housing reform programme.
Figure 2 on page 6 summarised the problems as: weak leadership and relationship management across agencies, a policy risk averse culture, a fragmented delivery model, under-investment in management practices and a lack of commercial property development expertise.
Freeman and Mills focused in particular on the under-resourcing of MSD as the 'intelligent purchaser' of social housing places, the lack of a plan to achieve the shift to 65,000 income related rent subsidies and the fragmented approach to land development in Auckland.
'There is no overall plan'
"There is no robust plan to achieve the 65,000 places and there are data and recording issues in monitoring progress to target," they said.
"Currently Treasury, MSD, MBIE, and Housing NZ are all involved in a variety of initiatives that aim to bring under-utilised land into residential development with the objectives of increasing overall housing supply, of which proportions would be ear-marked for affordable and social housing," they wrote.
"Lacking is an overall plan, to coordinate and align strategies across agencies and to provide needed clarity and certainty to commercial and other stakeholders to enable them to effectively participate."
Freeman and Mills recommended the creation of a Social Housing Programme Office and a new Crown-owned residential development and divestment agency, along with the development of a 10 year plan for new houses on Crown and Housing NZ land. They also wrote in December 2015 that decisions had yet to be taken on a Boston Consulting Group review of Housing NZ's ongoing role and structure.
They were pointed in their recommendations about the programme having to increase housing supply, rather than just buy social housing places from the private and voluntary sector.
They said the Housing Programme Office's mandate should include "supply side and affordable housing initiatives as well as those directly related to the purchase and provision of social housing, on the basis that social housing and wider housing supply and affordability initiatives are closely related and should not be separated."
In other economic and financial news...
Standard and Poor's downgraded Kiwibank's credit rating to A from A+ after the expiry of the unconditional guarantee from New Zealand Post on February 28. The removal of the guarantee followed the acquisition of 47% of Kiwibank by the NZ Super Fund and ACC. Moody's also downgraded Kiwibank by one notch.
S&P said its ratings reflected its belief the Government would step in to support Kiwibank in the event of a crisis, even though there is no government guarantee of banks. "The bank is highly likely to receive extraordinary support from the New Zealand government, if needed," S&P said. "This is because we consider that Kiwibank plays an important role to the New Zealand government and that the bank has a very strong link to the government as a result of its indirect ownership by the government," it said.
The Global Health Review: Worldwide Wealth and Migration Trends report estimated a net inflow of 4,000 millionaires into New Zealand in calendar 2016, up from 2,000 in 2015. It reported Australia was the most popular destination for migrant millionaires, with 11,000 last year, up from 8,000 the previous year. (Marketwatch)
While you were sleeping...
Donald Trump's address to Congress yesterday was praised by some for being more conciliatory and uplifting, but lacked detail about his plans for healthcare reform, infrastructure spending and migration reform. (Washington Post)
US stocks rose to fresh record highs after the speech. Expectations of a US Federal Reserve rate hike on March 15 rose overnight to 80% from 50%.
Meanwhile, the FT's Shawn Donnan reported from a leaked version of Trump's trade policy that the White House is set to ignore some of the rulings of the World Trade Organisation, which would upend decades of international trade law that has fostered globalisation. The policy would allow Washington to unilaterally impose tariffs on countries such as China. (Washington Post)
Tweets of the day:
Trump talking about infastructure reminds me that he hasn't ever paid taxes.
Charles Finny after Trump referred in his speech to Congress Reagan's use of tariffs to support Harley Davidson:
New Zealand tariff on Harley Davidson motorbikes - zero% #TrumpAddress
Not sure I'm comfortable hearing Trump say he's going to "light up the world".
Have a great day