Global concerns expected to be filled out in Orr's first FSR

Reserve Bank governor Adrian Orr will present his first Financial Stability Report tomorrow....
Reserve Bank governor Adrian Orr will present his first Financial Stability Report tomorrow. PHOTO: THE NEW ZEALAND HERALD
New Reserve Bank governor Adrian Orr gets another chance tomorrow to get his views across when he presents his first Financial Stability Report (FSR).

BNZ senior economist Craig Ebert said he would not be surprised if the Reserve Bank coloured in the global concern it sketched in its May Monetary Policy Statement.

He also would not be surprised if the FSR hinted at how quantitative easing might look in New Zealand, should it be necessary, and even the line in Mr Orr's article last week about New Zealand's financial system not being immune to global threats.

``In this, we detect not just preparedness but a slight nervousness - if not to engender any further official cash rate easing, then certainly an obstacle to any cash rate increase any time soon.''

The broader global financial markets had been choppy since the last FSR in November, Mr Ebert said.

There would also be interest in how the FSR would characterise the housing market and whether the bank kept admitting low interest rates remained an important factor in the recent house-price cycle.

It might skew attention more to the politically charged excuse of not enough land and houses to meet high immigration.

``In any case, with house-price inflation, and expectations thereof, not exactly dying a death yet, we don't expect the Reserve Bank to announce any further loosening in the LVR restrictions just yet.''

The FSR run-through of the agriculture sector would be important. The Reserve Bank was always thorough in that regard, he said.

Not long ago, it was all about the low dairy payout amid the build-up in debt occurring in the industry.

Now, Mycoplasma bovis was the immediate issue or threat everyone was trying to understand.

No matter what the Government decided on M. bovis - eradication or containment - the rural sector was facing a material amount of angst, Mr Ebert said.

While much of it might be hard to discern in the GDP accounts at large, at least initially, it would be ``very real'' for the sector concerned.

``We will monitor this process intently, including for any significant impacts it might have on our macro-economic views.''

On Thursday, the ANZ business confidence survey would be important for steerage, he said.

Confidence was well into the red in April, and activity expectations were just below par.

Agriculture was acting as a drag when its strong export prices would normally have had it blooming, Mr Ebert said.


 

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