The end of interest rate rises?
The US banking crisis may help force a rethink by the Reserve Bank here
Mōrena and welcome to The Bulletin for Monday, March 20, by Catherine McGregor. Presented in partnership with Z Energy.
In today’s edition: James Shaw vents frustrations over climate change and wealth gap; rain and wind to buffet South Island; Ibrahim Omer to replace Grant Robertson as Labour candidate. But first, a messy week in the financial markets could be prompting a turnaround in economic sentiment.
Reserve Bank governor Adrian Orr
Did last week’s turmoil stop interest rate hikes in their tracks?
What a difference a month makes. Just a few weeks ago, economic forecasters agreed: stubborn inflation meant the Reserve Bank (RBNZ) had no choice but to raise the OCR by another 75 basis points over its next three meetings. That’s all changed thanks to the financial firestorm kicked off by the collapse of Silicon Valley Bank (SVB) in the US, the massive wobbly thrown by Swiss bank Credit Suisse, and New Zealand’s unexpectedly poor GDP numbers for the last quarter of 2022. Westpac is among those that now expect the RBNZ to raise rates by 25 points to 5%, and then that’s it: the end of the current cycle. “Financial meltdowns are definitely disinflationary,” explained Liam Dann in the NZ Herald (paywalled). “They suck confidence and demand out of the economy… put simply, the events of the last week have done some of Reserve Bank Governor Adrian Orr’s work for him.”
Inflation fears fade – but for how long?
Not everyone is convinced Orr will be so easily swayed. A number of bank economists spoken to by interest.co.nz said SVB’s collapse would have little effect. They believed that, “at the margin, the reminder that the global environment was volatile and risky might push the RBNZ towards a smaller rate hike – but was unlikely to put [it] off altogether,” wrote Interest’s Dan Brunskill. One thing’s for certain: uncertainty is going to be with us for some time yet. “Sentiment might all change again next week. A new piece of data could put inflation back in the top spot as public enemy number one,” wrote Dann. “The Reserve Bank makes its next interest rate call on April 5, which, the way things are going, could still be several plot twists away.”
Investment funds take a hit
The meltdown among regional US banks isn’t just a macroeconomic problem for New Zealand. As Newsroom reported last week, Fisher Funds lost $80 million in its SVB investment, and has another $74m in San Francisco-based First Republic, which CNN is calling a “hot mess” of a bank. ANZ and Milford also had shares in the now-worthless SVB. In fact most Kiwisaver funds will have some exposure due to their indexing to the S&P 500, though Simplicity’s Sam Stubbs told Newsroom it equated to a loss of less than $20 per $100,000 invested. When individual banks are under threat, “yes, shareholders lose some money, but the banking system itself is kept intact," Stubbs said. "And overall, it recovers. So I'm not overly worried about what we've seen so far."
Could it happen here?
The US turmoil is prompting questions about the security of our own bank deposits. In a useful column for Businessdesk (paywalled), Frances Cook explained that this is precisely what the Deposit Takers Bill currently before parliament is designed to address. The state-run insurance scheme will guarantee up to $100,000 per person, per bank, which would cover 93% of NZ’s bank deposits. The government already has the ability to step in to guarantee deposits during times of crisis, Cook wrote. “I’m glad we’re bringing in a more formal system, but at least there’s that until then.” Further reassurance came from the Reserve Bank itself, which tweeted on Friday that “our banks operate different business models that mean that they are not as exposed to the risks that have led to recent events. Our rigorous stress testing has shown that they are well-placed to deal with far more adverse situations than what we are currently experiencing.”
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Shaw vents frustrations in speech to party faithful
James Shaw says he is “fed up” with the government’s “slow progress” on climate change and closing the wealth gap. Giving his ‘State of the Planet’ speech on Sunday, Shaw used the word “frustrated” eight times, reports Stuff’s Glenn McConnell. A National-Act alliance would, Shaw said, “be the most reactionary, race-baiting, right-wing government that we have seen in decades”. In response, National’s Chris Bishop told the NZ Herald that “with comments like that, we have no interest in working with [the Green Party].” While the Greens haven’t explicitly ruled out working with National next term, Bishop said “there’s no point inviting someone to a party if they don’t want to be part of it and they don’t want to bring the beers or whatever,” adding: “I think their attitude’s pretty clear from their remarks today.”
Rain and wind to buffet South Island
Much of the South Island faces a miserable start to the week, reports Newshub, with heavy rain “reaching warning amounts” in Westland, Southland, Otago and Canterbury, and severe gales forecast for North Otago and parts of Canterbury. A front will move onto Southland early Monday morning and move gradually north over the South Island, followed by a cold south-to-southwesterly change, MetService said. "A deep low may develop along this front to the east of the lower South Island on Tuesday, bringing the potential for severe gale southerlies, heavy rain and large southerly waves for eastern parts of the South Island." The bad weather and cooler temperatures should begin to lift by Thursday.
Why would anyone let Ted Lasso quit now?
Ted Lasso was the show the world fell in love with during the depths of the pandemic. Now, just three seasons in, it’s ending. In the latest edition of Rec Room, The Spinoff’s pop culture newsletter, Chris Schulz argues that everyone's favourite cornball coach is bowing out far too soon.
Candidate selected to replace Grant Robertson in Wellington
MP Ibrahim Omer will replace Grant Robertson as Labour’s candidate in the Wellington Central electorate after beating former party president Claire Szabo in the candidate selection race. Omer arrived in New Zealand as a refugee and worked as a cleaner before enrolling at Victoria University in 2014. “As someone who has worked long hours for low pay, I want to ensure that everyone who works hard in our communities can get ahead and improve their lives,” he said following his victory. In 2020 Robertson won the seat by a massive margin over National’s Nicola Willis. National is yet to select a candidate for this year’s race.
Click and collect
The Greens are calling for British anti-transgender activist Kellie-Jay Keen-Minshull to be barred from New Zealand after her supporters gave Nazi salutes and abused counter-protesters in Melbourne on Saturday.
Queenstown residents are facing rates rises of 13.6% on average thanks to a combination of economic conditions, rising costs and leaky homes issues.
A former US politician says he was part of a Republican Party effort to prevent the release of 50 American hostages held by Iran, prolonging a crisis that helped Ronald Reagan beat Jimmy Carter in the 1980 presidential election. (New York Times, paywalled)
A large police presence separated protesters from meeting attendees at the Ōrewa leg of a “stop co-governance” roadshow organised by evangelist Julian Batchelor.
Christchurch tourism businesses say a lack of direct international flights, especially from China, is threatening their livelihoods.
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‘The challenge was so huge that I was not thinking about consequences’
Since the Ukraine war and Putin’s crackdown on free speech, thousands of Russians have been forced into exile around the world. One of them is Mikhail Korotkov, a dedicated trainspotter who became obsessed with the president’s own armoured train – with dire results.
“Finding and photographing the train was both terrifying and exhilarating. To Korotkov, it was like a creepy ‘ghost train’ with a secret timetable, no identifying locomotive numbers and its windows always screened, “ writes Robyn Dixon for The Washington Post (republished on Stuff),
Dixon spoke to Korotkov from his new home in Sri Lanka, where he fled after the Russian secret service cottoned on to his interest in Putin’s train.
Some of the non banks may be a concern. Especially those based on the east coast of the North Island. A double whammy of interest margin contraction and asset destruction.