This week, the Reserve Bank of New Zealand (RBNZ) decided to keep the official cash rate (OCR) at 1 per cent. The decision was widely expected by economists, who couldn’t but notice the “upbeat” tone of the RBNZ’s statement.
“Economic growth is expected to accelerate over the second half of 2020 driven by monetary and fiscal stimulus, and the high terms of trade,” the statement reads. “The outlook for government investment is stronger following the Government’s announcements in December. There are also indications household spending growth will increase.”
The RBNZ stressed that slower global growth had “acted as a headwind” to domestic performance, though trade tensions have been showing signs of abating. In closing the statement, the Reserve Bank also mentioned Coronavirus as an “emerging downside risk”, but interestingly enough, they seem to downplay its impact on the NZ economy.
“We assume the overall economic impact of the coronavirus outbreak in New Zealand will be of short duration, with most of the impacts in the first half of 2020. Nevertheless, some sectors are being significantly affected. There is a risk that the impact will be larger and more persistent. Monetary policy has time to adjust if needed as more information becomes available.”
Economists and experts like Michael Reddell were critical of the little focus given to the virus outbreak, but in a press conference, RBNZ governor Adrian Orr defended the statement saying: “We are sticking to what we can see and listening to the experts.”
Independent economist Tony Alexander shared his views on the subject last month, saying that the ripple effect of Coronavirus could hit the regional housing markets reliant on tourism.
“The main impact of the virus outbreak is likely to be some declines in medium to long-term bank borrowing costs,” Alexander said. “All up, at the very margin, a virus outbreak looks like a net negative for housing markets in tourism-focused locations like Rotorua and to a lesser extent Queenstown and Wanaka. But elsewhere in the country, the interest rates’ effect and potentially tiny net migration effect could be a small net positive.”
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