NZ central bank sees cash rate on hold until 2025

RBNZ holds steady amid inflationary pressures while China's struggling real estate market sends ripples across Asian stocks.

By Ahmed Azzam | @3zzamous | 16 August 2023

  • Asian stocks slide: Australia, South Korea lead; MSCI China index falters post-stimulus vow.

  • China's property woes: July sees 0.1% YoY drop in home prices, spotlighting prolonged crisis.

  • RBNZ holds steady: New Zealand's rate unchanged at 5.5%.

Asian equities falter as China's property woes persist

In a disheartening turn of events, Asian stock markets, led by Australia and South Korea, have found themselves on a downward trajectory. A prominent casualty in this market correction is the MSCI China index, which is ominously poised to undo all the hard-won gains it had garnered since the Politburo's affirmative stimulus commitment just a month prior. In the western hemispheres, transatlantic prospects for both American and European futures remain mixed, shrouded in uncertainty.

Meanwhile, a modicum of stability was observed in the Treasury market, as the flutter of activity settled. Interestingly, the normally mercurial cryptocurrency, Bitcoin, exhibited a rare display of placidity, with its volatility gauged to be at its most subdued level since the bygone days of 2016. On a less propitious note, the global oil benchmark, Brent, faced a dip in its valuation.

Against the backdrop of these market fluctuations, a disconcerting picture emerges from China's real estate sector. Average new home prices in the nation's 70 major urban centers experienced a palpable downtick of 0.1% year-on-year in July of 2023. This follows a marginal ascent of 0.1% in the preceding month, June. This backslide paints a somber tableau as it marks the fifth instance of decline thus far within this year. The overarching narrative of an enduring property quandary paired with a sluggish economic convalescence paints a rather bleak picture.

Diving further into the numbers, a granular examination of the situation reveals that on a month-to-month basis, new home prices plummeted by 0.2%. Notably, this constitutes the inaugural descent of its kind in the current year. The conspicuous inefficacy of Beijing's expansive measures aimed at resuscitating the ailing sector is underscored by the enduring feebleness of consumer expenditure.

In a parallel discourse, global credit rating agency Fitch has issued a veiled warning, signifying that it might reconsider China's A+ rating status in the event that the specter of burgeoning bank and corporate debt crystallizes into genuine liabilities for the government. This ominous statement casts an uneasy pall over China's financial fortitude.

New Zealand holds cash rate for 2nd straight month

Shifting the spotlight to the antipodean region, the Reserve Bank of New Zealand (RBNZ) has navigated its policy waters with a poised mien. The bank, ensconced in its August conclave, elected to leave the official cash rate (OCR) undisturbed at the resolute level of 5.5%. This resolute decision echoes the stance adopted in the previous month, thus concurring with market anticipations.

The RBNZ's deliberations illuminated that prevailing monetary conditions continue to proscribe profligate spending while concurrently alleviating cost pressures. This measured approach is unsurprising given the cumulative 525 basis points worth of rate hikes implemented since October of 2021. The paradox, however, remains that despite these efforts, inflation maintains its obdurate ascendancy.

The central bank has hewed to the conviction that the OCR must persist in its restrictive orbit to reinscribe inflation within the hallowed ambit of the target range – a band encompassing 1 to 3% annually – by the advent of H2 in 2024. Strikingly, the RBNZ envisages that the OCR shall summit at its prevailing apogee of 5.5%, albeit with a whisper of potential upside risk, though any thoughts of an interest rate abatement have been deferred to the first half of 2025.

In the aftermath of these deliberations, the Kiwi currency exhibited a measure of buoyancy, ascending to the elevation of 0.5975. The RBNZ's persistent commitment to its course accentuates its posture as it endeavors to steer the twin ships of inflation and economic equilibrium through an ever-challenging sea of financial dynamics.