Monetary
Policy
Statement
September 2015

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

i

 Reserve Bank of New Zealand
Monetary Policy Statement
Subscribe online: http://www.rbnz.govt.nz/email_updates.aspx
Report and supporting notes published at:
http://www.rbnz.govt.nz/monetary_policy/monetary_policy_statement/

Copyright © 2015 Reserve Bank of New Zealand
This report is published pursuant to section 165A of the Reserve Bank of New Zealand Act 1989.

ISSN 1770-4829

ii

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Monetary Policy Statement
September 2015

Projections finalised on 2 September 2015. Data finalised on 3 September 2015. Policy assessment finalised on
9 September 2015.

Contents
1. 

Policy assessment 

2

2. 

Key policy judgements 

3

3.  

International developments 

7

4. 

Current domestic conditions 

15

5. 

The macroeconomic outlook 

24

A. 

Summary tables 

33

B. 

Outreach 

37

C. 

Upcoming Reserve Bank Monetary Policy Statements and Official Cash Rate releases 

39

D. 

Policy Targets Agreement 

39

Appendices

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

1

 Chapter 1
Policy assessment
The Reserve Bank today reduced the Official Cash Rate (OCR) by 25
basis points to 2.75 percent.
Global economic growth remains moderate, but the outlook has been
revised down due mainly to weaker activity in the developing economies.
Concerns about softer growth, particularly in China and East Asia,
have led to elevated volatility in financial markets and renewed falls in
commodity prices. The US economy continues to expand. Financial
markets remain uncertain as to the timing and impact of an expected
tightening in US monetary policy.
Domestically, the economy is adjusting to the sharp decline in export
prices, and the consequent fall in the exchange rate. Activity has also
slowed due to the plateauing of construction activity in Canterbury, and a
weakening in business and consumer confidence. The economy is now
growing at an annual rate of around 2 percent.
Several factors continue to support growth, including robust tourism,
strong net immigration, the large pipeline of construction activity in
Auckland and other regions, and, importantly, the lower interest rates
and the depreciation of the New Zealand dollar.
While the lower exchange rate supports the export and import-competing
sectors, further depreciation is appropriate, given the sharpness of the
decline in New Zealand’s export commodity prices.
2

House prices in Auckland continue to increase rapidly and are becoming
more unsustainable. Residential construction is increasing in Auckland,
but it will take some time to correct the imbalances in the housing market.
Headline CPI inflation remains below the 1 to 3 percent target due to
the previous strength in the New Zealand dollar and the halving of world
oil prices since mid- 2014. Headline inflation is expected to return well
within the target range by early 2016, as the earlier petrol price decline
drops out of the annual inflation calculation, and as the exchange rate
depreciation passes through into higher tradables prices. Considerable
uncertainty exists around the timing and magnitude of the exchange rate
pass-through.
A reduction in the OCR is warranted by the softening in the economy and
the need to keep future average CPI inflation near the 2 percent target
midpoint. At this stage, some further easing in the OCR seems likely.
This will depend on the emerging flow of economic data.
Graeme Wheeler

Governor

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Chapter 2
Key policy judgements
Growth in the New Zealand economy is moderating. At the end of
2015 the annual average rate of expansion is projected to be just over
2 percent, down from a rate of over 3 percent a year earlier. Headline
inflation remains low, at 0.3 percent in the year to June, primarily due
to falling prices in the tradables sector. During the next year, tradables
inflation is projected to pick up quickly, leading headline inflation to about
the middle of the 1 to 3 percent target range in the second half of 2016.
Domestically generated inflation is below average, and capacity pressure
is expected to ease modestly over coming quarters in light of lower
output growth. Consequently, we expect further monetary policy stimulus
will be needed (figure 2.1). Lower interest rates, together with the lower
exchange rate and a recovery in export prices, are expected to underpin
a pick-up in growth and inflation from 2016. Growth is projected to
increase to slightly over 3 percent in early 2018.
This projection is based on several judgements about forces acting on
the economy and how the economy will respond. The most important
judgements are that:
• 

the exchange rate will remain low, boosting tradables inflation and
stimulating activity in the tradables sector;

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

Figure 2.1
90-day
interest rate

9

%

%
Projection

9

8

8

7

7

6

6

5

5

4

4

3

3

2

2005

2007

2009

2011

2013

2015

2

Source:  RBNZ estimates.

• 

New Zealand’s export commodity prices have troughed, and the
recovery is assumed to be gradual;

• 

world growth will remain near its past average;

• 

net immigration has peaked, and its boost to demand and supply
will wane over coming years; and

3

 • 

rebuild activity in Canterbury has peaked, while house building in
Auckland will continue to accelerate.

We examine these judgements in more detail below.

The exchange rate and near-term inflation
The exchange rate has fallen significantly since April, and we assume it
will fall further over the next year to about 65 on a Trade Weighted Index
(TWI) basis. Two key factors behind the depreciation are lower export
prices and heightened uncertainty about the global economic outlook.
Both imply weaker prospects for New Zealand’s growth, and inflation,
and so lower interest rates.
As box C in chapter 5 shows, the lower exchange rate accounts for a
significant part of the rise in inflation over the next year. CPI inflation is
expected to move into the 1 to 3 percent target range in the first quarter
of 2016, and to the middle of that range two quarters later.
A higher exchange rate than assumed would imply lower near-term
inflation. The medium-term inflationary impacts would depend on the
factors driving the move in the exchange rate. One potential cause of
a higher exchange rate would be a rebound in export prices. In such a
scenario the medium-term outlook would be for stronger incomes, growth
and inflationary pressure. Alternatively, the exchange rate could be
higher than assumed if the Federal Reserve or other central banks were
to delay interest rate increases because of concerns about a weaker or
more uncertain economic outlook. In that case, the implication for New
Zealand would be both lower near-term inflation and weaker mediumterm growth.

4

The outlook for export commodity prices
The falls in commodity prices this year stem from weaker global growth
prospects – especially for China – and increased global supply of some
goods. For New Zealand, lower dairy prices imply reduced cash flow
in the dairy sector over the current and subsequent season, with flowon effects to incomes and confidence in the wider economy. As noted
in box A in this chapter, the falls in dairy prices over the past year have
contributed to a weaker outlook for medium-term inflationary pressures.
We assume the recovery in world dairy prices, towards a more
sustainable level, will be slow. Prices on the GlobalDairyTrade platform
are assumed to remain subdued over the next year before picking up.
The dairy price falls already seen will weigh on incomes both this season
and next. In the rural sector especially, and through the economy more
widely, economic confidence has fallen and growth in domestic spending
has eased.
Past experience shows that falling export prices lead to lower business
investment, as firms worry about the prospects for future demand. We
assume this historical pattern continues and that those in, and with
direct exposure to, the dairy sector will cut back on investment most
quickly. Box B in chapter 4 notes that farmers are already reducing
on-farm investment. We also assume lower export prices will lead to
slower consumption growth. Again, consistent with the historical pattern,
spending on consumption is projected to slow more gradually than
investment, as households use savings or borrowing to avoid pulling
back sharply on regular spending.

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Trading partner growth
Trading partner growth since 2011 has been close to its historical
average, despite several periods of heightened uncertainty and volatility
in markets. Recently, financial market volatility has increased again,
along with uncertainty about the global growth outlook. Concern about
the outlook for growth in China has been an important influence. As
growth in China has moderated, so too has growth in some other
emerging Asian economies.
We expect global growth overall to remain around its past average.
However, a downside shock – while not our expectation – could change
the outlook significantly. Box D in chapter 5 gives one view of how
monetary policy might need to respond to such an event.

steadily as new supply comes on-stream, but do not assume a sharp
house price adjustment.

Construction
The Canterbury rebuild has provided a strong impetus to output
growth since 2011. Updated information suggests that rebuild-related
construction has peaked, with work assumed to remain at a high level for
several years. This suggests construction will make a smaller contribution
to growth over the projection than previously assumed. Nonetheless, as
discussed in chapter 5, the contribution is expected to be positive. Work
elsewhere in the country has been accelerating, especially in Auckland in
response to a shortage of housing and high house prices.

Migration, growth, and housing demand
Net immigration has been at record-high levels, and our view is that
it has reached a peak in recent quarters. It is expected to ease over
the projection. Migrant flows have added to both demand and supply
capacity in the economy since early 2013. On the demand side,
population growth has added to the demand for housing as well as
consumer goods.
In Auckland, increased population has combined with a slow increase
in the housing stock over recent years to result in a supply shortage.
Relatedly, investor demand has increased in Auckland over the past year,
exacerbating price pressures. While the Bank has noted that there are
associated risks to financial stability, our expectation is that loan-to-value
restrictions and the policy measures announced in Budget 2015 will
help to reduce that risk. We assume that house price inflation will ease

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

5

 Box A
Recent monetary policy decisions
During 2013 and 2014, high export commodity prices were a key driver
of growth, along with increasing construction activity and rising net
immigration. While export prices eased through the first three quarters
of 2014, they remained very high by past standards. With inflationary
pressures estimated to be increasing, and expected to rise further, the
Bank increased the OCR by 100 basis points from March to July 2014.
Over the second half of 2014 and through 2015, a weakening outlook for
export commodity prices – and particularly dairy prices – has been a key
driver of changes in the outlook for medium-term inflationary pressures,
and so of the outlook for monetary policy.
Although dairy prices had fallen by the time of the March 2015
Statement, there was a significant offset from lower oil prices, which
kept the terms of trade high by past standards (figure A.1). With inflation
modest, the high exchange rate weighing on tradables sector incomes,
and concerns about drought, the Bank changed its policy outlook to
projecting a period of stability in interest rates (figure A.2).
Dairy prices fell significantly further between the March 2015 and June
2015 Statements, and again between the June Statement and the
July OCR review. Figure A.1 indicates the magnitude of the falls in the
Bank’s terms of trade projection from the March Statement to the current
projection. The consequent reduction in spending power and confidence
became more evident in activity data received over the second quarter
of 2015, and so the outlook for growth and inflationary pressures was
revised down. Reflecting this, the Bank lowered the OCR by 25 basis
points in June and July.

6

Figure A.1
Terms of
trade

Index

Index

1.25

1.25

1.20

1.20
March

1.15
1.10

June

1.15
1.10

1.05

1.05

1.00

1.00

0.95

Current

2005

2007

2009

2011

2013

2015

2017

0.95

Source:  Statistics New Zealand, RBNZ estimates.
Note: 

Dotted lines indicate projections.

Figure A.2
90-day
interest rate

9

%

%

9

8

8

7

7

6

6

5

5

4

March

4

3

June
Current

3

2

2005

2007

2009

2011

2013

2015

2

Source:  RBNZ estimates.
Note: 

Dotted lines indicate projections.

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Chapter 3
International developments
The global economic environment has deteriorated over 2015. Economic
growth in New Zealand’s trading partners has slowed, and forecasts have
been revised down. Monetary policy remains very accommodative in most
regions, and has been eased further over 2015. Trading partner inflation
remains weak, reflecting slack in the global economy and declines in oil and
other commodity prices.
Global financial market volatility has increased significantly since the June
Statement. Equity markets have been particularly volatile, and there have
been widespread declines in commodity prices. The increased volatility
relates mainly to increased concern and uncertainty about the strength
of and prospects for the Chinese economy, and continuing uncertainty
about the timing of United States interest rate increases. Of most concern
for New Zealand is the impact of weaker Chinese demand on the price and
volumes of New Zealand’s exports, including through flow-on effects to
New Zealand’s other Asia/Pacific trading partners. Heightened volatility
has increased financial risk measures and risk aversion. This may provide a
headwind to business and consumer confidence and thus global growth. At
this stage capital markets continue to function reasonably well.

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

Trading partner economies
Annual growth in New Zealand’s trading partners slowed to 3.5 percent in
the June 2015 quarter, down from 3.7 percent a year earlier. The outlook
for trading partner growth has been revised down over 2015, especially
in the Asia/Pacific region (figure 3.1). Trading partner growth is expected
to increase only slightly during the projection – less than previously
expected – supported in large part by stimulatory monetary policy,
and in some areas by fiscal policy. However, there remains significant
uncertainty about the outlook – especially for China, which has important
flow-on effects through the Asia/Pacific region and the global economy.
Asian economies are an important source of demand for New Zealand’s
exports, and for those of Australia – a key trading partner for New
Zealand. Within the Asia/Pacific region, China plays a major role,
influencing Australia and New Zealand directly through its impact on
export volumes and prices, particularly for commodities, and indirectly
through its effect on other Asian economies.

7

 Figure 3.1
Revisions
to growth
forecasts
(2015, annual
average)

ppts

0.1

Other advanced
economies

ppts

0.1

Australia

0.0
−0.1

0.0
−0.1

GDP−16

−0.2

−0.3
Asia ex−Japan
ex−China

−0.4

Jul14

Oct14

Jan15

Apr15

−0.6
Jul15

Source:  Consensus Economics, Statistics New Zealand, RBNZ estimates.
Note: 

The graph illustrates the cumulative changes in Consensus Economics forecasts for annual average
GDP growth since January 2014, weighted by New Zealand merchandise export shares from the
June 2015 quarter. Asia ex-Japan ex-China includes Hong Kong, India, Indonesia, Malaysia,
Singapore, South Korea, Taiwan, Thailand, and the Philippines. Other advanced economies
includes Canada, the euro area, Japan, the United Kingdom, and the United States.

Annual growth in China continues to slow. Part of this slowdown reflects
a structural trend as economic reforms continue and the economy moves
towards more consumption-led growth. However, cyclical momentum is
also slowing.
Weakness has been most pronounced in the industrial sector.
Considerable spare capacity in the manufacturing sector and slowing
output growth have led to less growth in manufacturing investment (figure
3.2). In turn, this has weighed on demand for hard commodities, of which
China’s industrial sector is a globally significant user.
Growth in real estate investment remains subdued, due to a large buildup of housing inventory. Recently, there have been signs of recovery in
the property market. Residential property prices have increased in larger
cities over recent months. Prices in smaller cities continue to decline.
8

%

50

Manufacturing
investment

40

Real estate
investment

20

40
30
20

10

−0.5
Apr14

%

−0.4

−0.5
Jan14

50

30

−0.2

China

−0.3

−0.6

Figure 3.2
Economic
activity in
China
(annual
growth)

0

2006

Source:  Haver Analytics, RBNZ estimates.
Note: 

10

Retail sales

2008

2010

2012

2014

0

Manufacturing and real estate investment are in current prices, retail sales is in real terms. 3-month
moving average.

Consumption growth has held up relative to investment. This is important
for New Zealand, as a large share of New Zealand’s exports to China
are consumer goods and services. Nonetheless, growth in retail sales
volumes has been weaker than in 2014 and is yet to offset falling
investment growth.
GDP growth in China is projected to remain near 7 percent over 2015,
supported by accommodative monetary and fiscal policies. Since the
June Statement, the People’s Bank of China (PBoC) has eased its
benchmark interest rates further and the reserve requirement ratio for
banks by 50 basis points. Over the latter part of the projection, growth is
expected to ease slightly to about 6 percent, but remain high relative to
other economies.
However, there are significant downside risks to the outlook for Chinese
growth. Some indicators suggest greater cyclical weakness than
indicated by headline GDP growth. There is also uncertainty around how

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 the various policy changes will affect economic activity. In addition, while
only a small proportion of aggregate household wealth is held in shares,
significant declines and volatility in Chinese equities in the past few
months may dampen confidence more broadly. Over the medium term,
progress on structural reforms remains important for supporting GDP
growth.

Australian labour market conditions have generally improved over
2015, but spare capacity in the economy remains. The Reserve Bank
of Australia has kept its cash rate stable at a record low of 2 percent,
following a 25 basis point reduction in May 2015. Financial market pricing
indicates a market expectation that there will be a further 25 basis point
reduction in the cash rate by the end of 2015.

The slowing of Chinese growth is flowing through to New Zealand’s other
Asian trading partners. GDP growth in Asia excluding China and Japan
has declined to 3.8 percent in the June quarter, down from 4 percent a
year earlier. China’s economic slowdown is dampening export volumes
for these countries, and domestic demand across the region also
appears to have weakened over recent months. Country-specific factors
are also having an impact, such as public health concerns in South Korea
and lower revenue for commodity exporters such as Malaysia.

The United States economy is growing at a moderate pace, having
rebounded from the weather-induced weakness at the start of 2015.
Consumption is underpinning growth, supported by an increase in real
disposable incomes and net wealth. Conditions in the housing market are
strengthening, and residential investment is growing solidly. In contrast,
growth in industrial output and business fixed investment is more
subdued, in part dampened by a stronger US dollar and weaker activity
in the energy sector. These factors have contributed to a slightly weaker
outlook for the United States economy than expected a year ago.

In major advanced economies, the gradual nature of the recovery
means that there continues to be spare capacity, and monetary policy
settings remain very stimulatory. A concern is that recent risk aversion
and volatility in financial markets could dampen confidence and act as a
headwind to economic growth.
Annual GDP growth in Australia is below its historical average, at 2
percent for the June 2015 quarter. The move away from growth driven
by investment in resource extraction continues to be gradual, with
household sector demand growth below average despite low interest
rates and high house prices. Investment in the mining sector has
declined substantially, while investment in other business sectors has
been weak. Growth in commodity export volumes has provided some
offset to this weakness, although export prices are significantly lower.

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

Conditions in the United States labour market continue to improve.
Employment growth is robust and the unemployment rate has edged
lower this year, to 5.3 percent in July. Despite this, both inflation and
wage increases remain modest, pointing to some remaining slack in the
economy. Reflecting continued improvement in the economy and labour
market, financial market pricing suggests that the Federal Reserve will
begin increasing interest rates from a very low level over the coming six
months.
Despite recent events surrounding Greek debt negotiations, the euro
area as a whole continues its gradual recovery. The European Central
Bank’s extremely accommodative monetary policy has contributed
to record low interest rates for households, and this is supporting
stronger consumption growth. In addition, the weaker euro is helping
to support net exports. The labour market is improving, but the euro
9

 Figure 3.3
Inflation
(annual)

8

%

%
Projection

7
Asia ex−Japan

6

7

5

4

4
Australia

2

3
2

1

1

Other advanced
economies

0
−1

8
6

5

3

2003

2006

2009

2012

A broad range of commodity prices have fallen since the June Statement,
after showing signs of stabilising earlier in the year (figure 3.4). This
will lower the incomes of commodity exporting countries, including
New Zealand, although most countries will receive some offset through
cheaper oil imports.

0
2015

−1
2018

Source:  Haver Analytics, RBNZ estimates.
Note: 

Commodity price developments

Asia ex-Japan includes China, Hong Kong, India, Indonesia, Malaysia, Singapore, South Korea,
Taiwan, Thailand, the Philippines, and Vietnam. Other advanced economies includes Canada, the
euro area, Japan, the United Kingdom, and the United States.

Figure 3.4
Global
commodity
prices

Index

130

120

120

Livestock

110

110

100

100

90

area unemployment rate remains elevated around 11 percent. Overall,
euro area growth is forecast to pick up to 1.7 percent by the end of
2015, and to remain around this level for several years. While this is an
improvement in growth compared with recent years, significant slack
remains in the euro area and is expected to be absorbed only gradually.
Inflation in New Zealand’s trading partners fell substantially over the
second half of 2014 (figure 3.3). The decline in the price of oil in late
2014, and further declines in oil and other commodity prices since July,
will dampen annual inflation rates until 2016. Over and above this, core
inflation is expected to remain modest over the next three years in most
economies. Low inflation reflects the gradual expected absorption of
spare capacity. As a consequence, monetary policy settings across
many regions are likely to remain accommodative for an extended
period.

Index

130

Industrial

80

90

Agricultural

80

70

70

60

60
Energy

50
40

Jan14

Apr14

Jul14

Oct14

Jan15

50
Apr15

40
Jul15

Source:  Bloomberg, RBNZ estimates.
Note: 

SDRs, 1 January 2014 =100.

Concerns about global growth and prospects for future demand have
contributed to the fall in commodity prices. The outlook for Chinese
growth and demand is especially important, given that China accounts
for about 18 percent of global non-oil commodity imports. The second
largest consumer is the United States, at 7 percent.1 Increasing concern
and uncertainty about Chinese economic growth, and related volatility in
1 HSBC Global Research Commodities’ wake, 3 August 2015.

10

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Figure 3.5
Growth and
commodity
prices

Index

Index

3

3

Bloomberg commodity price index

2

2

1

1

0

0

−1

−2

World industrial
production

−3

GDP−16
growth

1999

2002

2005

2008

2011

350

ANZ dairy price index
Soft commodities
index

2014

250

250

200

200
150
ANZ commodity price index
excluding dairy

100
50

−5

2004

2006

Source:  Haver Analytics, Bloomberg, RBNZ estimates.

Source:  ANZ Bank, Bloomberg, RBNZ estimates.

Note: 

Note: 

Standardised, deviation from average.

300

150

−4
1996

Index

−3

−4
−5
1993

Index

350
300

−1

World trade
volumes

−2

Figure 3.6
Commodity
prices

2008

2010

2012

2014

100
50

July 2003 = 100. The soft commodities index is a weighted average of food commodity prices
constructed from daily Bloomberg data, using weights based on the International Monetary Fund’s
primary commodity price index. It includes: wheat, corn, barley, soybeans, soybean meal, soybean
oil, palm oil, lean hogs, poultry, sugar, coffee, and cocoa. The indices are in SDR terms.

Chinese financial markets, have contributed to the declines in commodity
prices since the June Statement.
At the same time, abundant supply of many commodities remains an
important factor underpinning low prices. In part this reflects the global
supply response to the higher commodity prices over recent years. The
importance of supply is highlighted by the significant divergence between
indicators of global growth and commodity prices that has opened up
over the past year (figure 3.5).

Consistent with this trend decline in commodity prices, prices for New
Zealand’s commodity exports have fallen in 2015. Dairy prices have
fallen about 15 percent since the beginning of the year, and are 55
percent below their February 2014 level. The prices of New Zealand’s
other export commodities, including meat and forestry products, have
been much more resilient (figure 3.6). Prices for food-based commodities
in general have fallen by less than dairy prices.

Commodity supply has fallen less quickly than expected in response to
price declines, and this is most notable in global oil markets. The price of
Brent Crude oil has fallen more than 20 percent since the beginning of
July, as supply growth outpaces expectations. Overall, the International
Energy Agency forecasts that oil production will continue to outpace oil
demand through 2016.

Despite the 27 percent rise in dairy prices on the GlobalDairyTrade
platform since the beginning of August, dairy prices remain near sixyear lows. Growth in global milk production ramped up significantly in
2014, contributing to a build-up in inventories. While many farmers,
including in New Zealand, are operating well below break-even price
levels, the easing in global production growth has been more gradual

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

11

 than expected. Supply adjustment is being delayed partly by subsidies
supporting farmers in several countries. The removal of European quotas
on milk production in 2015 also adds to uncertainty about the global
supply outlook. On the demand side, there is significant uncertainty about
the rate of reduction in Chinese dairy inventories that built up in 2013.

Figure 3.7
Financial
market
volatility

Index

Index

90

300

80

250

70
60

200

50

MOVE index
(RHS)

40

Global financial conditions

30

100

20
10
0

Global financial market volatility has increased markedly since the June
Statement, but remains well below the heights seen during the global
financial crisis (figure 3.7). Equity market volatility has risen the most,
with increases in bond and exchange rate volatility more modest. Capital
markets have remained reasonably well-functioning thus far. While the
Greek debt negotiations contributed to the rise in volatility earlier in the
quarter, the recent rise mainly stems from concerns and uncertainty
about the strength of the Chinese economy. Investors have also become
more concerned about growth prospects for other emerging markets.
A key trigger for concern about some emerging market economies has
been the rapid fall in the prices of commodities they export. There have
also been concerns that the appreciating US dollar is increasing the local
currency value of US dollar-denominated debt. A consequence has been
significant capital outflows and exchange rate depreciation in a range of
countries. Brazil, Russia and Malaysia in particular have been affected.
Capital outflows from China and some of New Zealand’s other Asian
trading partners have also increased, but outflows appear to have been
more orderly to date. Most countries in Asia have built up substantial
foreign exchange reserves in recent years.

12

150

50

VIX index

2006

2008

2010

2012

2014

0

Source: Bloomberg.
Note: 

The VIX index shows the market’s expectation of 30-day volatility in the S&P500 index, while the
MOVE (Merrill Lynch Option Volatility Estimate) index shows implied one-month volatility for US
Treasury bonds.

Chinese equity prices fell significantly in late June and early July, and
again in August. In June and July, the Shanghai Composite index fell
more than 30 percent from its peak over the course of 19 days. This
fall followed an increase of around 150 percent over the previous 18
months (figure 3.8). There was no single trigger for the fall. Rather, it
was attributed to a combination of weaker economic data, recognition
that equity prices were overvalued, and policy measures by the Chinese
authorities to contain leveraged investment. During this period, the
Chinese authorities lowered interest rates, facilitated the purchase of
shares by state entities, and suspended the trading of some company
shares.
The equity price falls in late August were more substantial than those
in June and July. These were triggered by continuing concerns about
Chinese growth prospects. The Shanghai Composite index fell almost 27
percent over seven days, to late 2014 levels.

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Figure 3.8
Shanghai
Composite
index

Index

Index

55

55

50

50

45

45

40

40

35

35

30

30

25

25

20

Jul14

Oct14

Jan15

Apr15

Jul15

20

Source: Reuters.

Figure 3.9
Equity indices

Index

Index

130

130

125

125

Europe

120

120

115

115

US

110

105

100

100

Japan

95

95

90

90
Jan14

Apr14

Jul14

Oct14

Jan15

Apr15

85
Jul15

Source: Bloomberg.
Note: 

Some market participants see the lower prices as closer to fundamental
values, given the large run-up in equity prices over the past several
years. The fall also brings prices more in line with a widening in corporate
credit spreads over the past few months.
Increased financial market volatility has raised the prospect that
monetary policy could remain stimulatory for longer. In particular, the
period of volatility has caused financial market participants to reduce their
expectation of a September policy rate increase by the Federal Reserve.
Nevertheless, the Federal Reserve is expected to begin tightening policy
some time over the next six months, driving further divergence between
its interest rates and those in the euro area and Japan. The Bank of
Japan and European Central Bank are still undertaking quantitative
easing programmes to stimulate growth and inflation, and market
commentary is suggesting that these programmes might be extended.

110

105

85

Following the fall in Chinese indices, the US S&P 500 index fell more
than 10 percent in four days, before rebounding slightly. Similar moves
were seen in European equities (figure 3.9).

Indices shown are US S&P 500, Japan Nikkei 225, and Europe Stoxx 600. 1 January 2014 = 100.

The PBoC surprised investors by devaluing the yuan against the US
dollar in early August. The move was part of reforms to open China’s
foreign exchange market, by allowing market forces to help the USD/
CNY find its equilibrium level. Despite the recent devaluation, on a tradeweighted basis the Chinese exchange rate remains elevated compared
to recent years. The move resulted in other Asian economies’ currencies
depreciating as well, reducing the extent of the competitiveness gain for
China.
Expectations that the Federal Reserve may now raise interest rates later
than previously expected has caused a slight weakening in the US dollar

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

13

 Figure 3.10
Commodity
currencies

Index

Index

105

105

South Africa

100

100

Figure 3.11
10-year
government
bond yields

5

90

95

3

90

2

85

1

80

0

Canada
New Zealand

Jan15

Mar15

May15

Jul15

Source: Bloomberg.
Note: 

5

New Zealand

4

Australia

95

80

%

4

Australia

85

%

3
2

United States
Germany

1

United Kingdom

Japan

Jan14

Apr14

Jul14

Oct14

Jan15

Apr15

0
Jul15

Source: Reuters.

Exchange rate with the US dollar. A fall is a depreciation. 1 January 2015 = 100.

against other major currencies since the June Statement. Nonetheless,
the US dollar has continued to strengthen against emerging market
currencies.
Reflecting falls in commodity prices, several commodity-linked currencies
have depreciated. Among these are the Canadian dollar, South African
rand, and Australian dollar (figure 3.10). The New Zealand dollar has also
depreciated since the June Statement, as discussed further in chapter 4.
After increasing in late April, global 10-year bond yields have gradually
started to fall again (figure 3.11). Among the reasons are lower risk
premia and expectations that monetary policy will remain more
stimulatory for longer. 10-year government bond yields have returned to
near their 2015 lows in New Zealand, Australia, and the United States.
However, yields in Germany remain higher than 2015 lows as growth
prospects improve in the euro area, and reflecting a view that German
bond yields fell below fundamental levels earlier in the year.
14

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Chapter 4
Current domestic conditions
Economic growth in New Zealand has slowed since the end of 2014. The
weaker international economic environment is weighing on domestic
demand, most importantly through lower export prices. Monetary
conditions have eased since the beginning of the year, as mortgage rates
have declined and the New Zealand dollar TWI has fallen sharply. Growth in
the economy’s productive capacity has remained strong, reflecting strong
labour force growth. As a result of weaker demand and strong growth in
productive capacity, pressure on productive resources is estimated to have
declined over the past year.

Domestic financial market developments
Monetary conditions have continued to ease since the beginning of 2015,
and have eased further since the June Statement. The OCR was lowered
by 25 basis points in June and July, and financial markets now anticipate
more easing than they did at the time of the June Statement. More
accommodative domestic monetary policy and lower global interest rates
have contributed to a substantial decline in New Zealand’s wholesale and
mortgage interest rates this year. The New Zealand dollar TWI has fallen
significantly, further easing monetary conditions.
Mortgage interest rate declines have been most pronounced for the oneand two-year fixed terms (figure 4.1), where competition between banks
is strong. Since the beginning of the year, two-year fixed mortgage rates
have declined by more than 1 percentage point, with 0.7 percentage
points of this fall occurring since the June Statement.
Reflecting the relatively low fixed mortgage rates, the proportion of
mortgages on floating rates fell to 26 percent in July, down from a peak
of more than 60 percent in April 2012 (figure 4.2). Over the past year, the

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

15

 Figure 4.1
Mortgage
interest rates

7.0

%

%

7.0

Floating

6.5

3−year

Figure 4.3
Bilateral NZD
movements

6.5

2−year

6.0

6.0

5.5

5.5

0

%

%

0

−5

−5
Since June MPS

−10
1−year

5.0

−15

5.0

4.5

2012

2013

2014

2015

4.5

−20

−10
Since 1 January

TWI

Source:  interest.co.nz, RBNZ estimates.

Source:   Reuters, RBNZ estimates.

Note: 

Note: 

Each rate shown is the lowest carded rate on offer from four banks: ANZ, ASB, BNZ, and Westpac.

Figure 4.2
Share of
mortgages
by duration

70

%

%

70

Floating

60
50

50

40

40
Fixed
< 2−year

30

Fixed
> 2−year

20
10
0
Source: RBNZ.

16

60

30
20
10

2005

2007

2009

2011

2013

0

AUD

−15

CNY

USD

EUR

JPY

−20

% change to date.

two-year mortgage rate has been the most popular, as this has been the
lowest available mortgage interest rate.
The New Zealand dollar TWI has fallen further since the June Statement,
extending the decline that began in April this year. An important factor
weighing on the New Zealand dollar is the continued deterioration in New
Zealand’s terms of trade, which dampens New Zealand’s relative growth
prospects and so expected interest rate differentials.
The New Zealand dollar TWI is currently 13 percent lower than at the
beginning of the year, and the decline has been broad-based across
New Zealand’s key trading partner currencies (figure 4.3). The NZD-USD
exchange rate has fallen to around 0.63 – its lowest rate since mid-2009
– as moderate economic growth in the United States and the chance of
monetary policy tightening later this year continue to underpin a strong
US dollar.

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Since the June Statement, bilateral exchange rate movements have
been more mixed, in part due to increased uncertainty and risk in global
financial markets related to events in China. The New Zealand dollar has
depreciated most against typical ‘safe-haven’ currencies, such as the
US dollar, euro and Japanese yen. In contrast, the New Zealand dollar is
broadly unchanged against other commodity-linked currencies, such as
the Australian dollar and the Canadian dollar.

Output growth

Figure 4.5
Real export
prices
(world terms)

Index

Index

1.10

1.10

1.05

1.05

1.00

1.00

0.95

0.95

0.90

0.90

0.85

0.85

0.80

2005

2007

2009

2011

2013

2015

0.80

Source: Statistics New Zealand, RBNZ estimates.

The economy expanded by 2.6 percent in the year to March 2015, which
was a slower pace of growth than over 2014 (figure 4.4). Growth is
estimated to have slowed slightly further over the middle of 2015.

Figure 4.4
GDP growth
(annual)

4

%

%

4

3

3

2

2

1

1

0

0

−1

−1

−2

−2

−3

2007

In addition to supportive monetary policy, drivers of strong GDP growth
over 2014 were the high average level of export prices, increasing net
immigration, and increasing construction activity. The slower growth over
2015 reflects a moderation in the impulse to growth from each of these
drivers, with easier monetary conditions providing some buffer.

2009

2011

Source:  Statistics New Zealand, RBNZ estimates.

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

2013

−3
2015

As discussed in chapter 3, prices of New Zealand’s export commodities
have declined significantly since the beginning of the year, due mainly to
falls in dairy prices. These declines in commodity prices are consistent
with a fall in New Zealand’s overall export price basket of around 25
percent in real terms since early 2014 – an extremely large adjustment in
historical terms (figure 4.5).
Net immigration remains strong, but appears to have plateaued over
recent quarters (figure 4.6). Net permanent and long-term immigration of
working-age people in the year to July 2015 was 53,000, or 1.5 percent
of the working age population. Net immigration from Australia remains
historically elevated, with New Zealand receiving a net inflow of migrants
17

 Figure 4.6
Net
immigration

0.4

%

%

0.4

0.3

0.3

0.2

Figure 4.8
Value of
residential
consents

450

400

400
350

Rest of
New Zealand

300
250

300
250

Auckland

200

0.1

0.0

$m

350

0.2

0.1

$m

450

200

150

150
Canterbury

100

0.0

50
−0.1

2005

2007

2009

2011

2013

−0.1
2015

0

50
2005

2007

Source:  Statistics New Zealand, RBNZ estimates.

Source:  Statistics New Zealand, RBNZ estimates.

Note: 

Note:  

Share of working-age population, s.a. The figures are for net permanent and long-term working-age
migration flows.

Figure 4.7
Construction
growth
(annual)

20

%

%

15

10

10

5

5

0

0

−5

−5

−10

−10

−15

−15
2005

2009

2011

2013

0

3-month moving average, s.a.

from Australia in recent months. In addition, the number of permanent
arrivals remains elevated across a range of visa categories.

20

15

−20

100

2007

Source:  Statistics New Zealand, RBNZ estimates.

2009

2011

2013

−20
2015

Construction expenditure is estimated to have remained strong through
the middle of 2015, but to have grown at a slower pace than in recent
years (figure 4.7).
Growth in residential investment has slowed over the past 12 months.
Slower growth in residential investment is mainly due to the residential
rebuild in Canterbury which is estimated to have peaked in early 2015,
about a year earlier than previously expected. Residential consent
issuance in Canterbury has slowed, but strong consent issuance
elsewhere is consistent with continued growth in residential building
activity through the middle of 2015 (figure 4.8).
Non-residential construction has remained strong, both in Canterbury
and in the rest of New Zealand, but the pace of growth has slowed over
the past year.

18

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Figure 4.9
Business
confidence
(s.a.)

Index

Index

80

ANZBO

60
40
20
QSBO

0

80
60

Figure 4.10
House price
inflation

25

%

%

25

20

40

15

20

10

Christchurch

20
15

Auckland

10

0

5

5

−20

−20

0

0

−40

−40

−5

−60

−60

−10

−80
2015

−15

−80

2005

2007

2009

2011

2013

Source:  ANZ Bank, New Zealand Institute of Economic Research, RBNZ estimates.

−5

Rest of
New Zealand

2005

2007

2009

2011

−10
2013

−15
2015

Source:  REINZ, RBNZ estimates.
Note:  

Annual, 3-month moving average.

Growth in business investment is estimated to have slowed over the
middle of 2015. Slower growth in business investment is consistent with
lower capacity pressure, export prices, and reduced business confidence
(figure 4.9). Box B describes how farmers and other businesses are
responding to lower dairy prices, based on recent discussions with
contacts in the agricultural sector.

Lower export prices, and hence lower current and expected national
incomes, have weighed on consumer confidence and spending.
However, strong growth in real labour incomes and house prices over
the past year is supporting moderate growth in household consumption.
Low import prices, particularly for commodities such as oil, are boosting
households’ purchasing power.

While other drivers of domestic demand have slowed, the housing market
– which tends to correlate with consumption growth – has continued to
strengthen. High population growth and low mortgage interest rates are
contributing to strong housing demand. At present, house price inflation
is much higher in Auckland than in the rest of the country, reflecting
stronger population pressures and constrained housing supply (figure
4.10).House price inflation is beginning to increase in some other areas,
such as Hamilton and Tauranga. Policy measures announced in Budget
2015 and restrictions on high loan-to-value ratio lending to investors in
Auckland are expected to help dampen demand for existing houses.

While household consumption growth has been moderate, growth in
retail trade volumes has been stronger in recent quarters (figure 4.11). In
part, this reflects the boost to retail sales from strong growth in spending
by overseas visitors.

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

Import volumes have been high over the past year, reflecting the
dampening impact of the elevated exchange rate on the price of imports.
However, import volumes are estimated to have declined over the middle
of 2015, as lower growth in domestic demand has reduced the demand
for imports, and the lower exchange rate has increased their relative
price.
19

 Figure 4.11
Spending
growth
(quarterly,
real, s.a.)

4

%

%

4

3

3

Retail trade
volumes

4

2

1

1

0

0

0

−3

2005

2007

2009

2011

2013

4

2

1

Consumption

%

3

2

−2

%

3

2

−1

Labour
force

1
0

Employment

−1

−1

−1

−2

−2

−2

−3

−3

Source: Statistics New Zealand, RBNZ estimates.

The lower exchange rate is also acting as a partial buffer for the export
sector from declining prices. With the exception of dairy, and, to a
degree, logs, many of New Zealand’s export prices remain relatively
high. Further, the lower exchange rate is supporting demand for New
Zealand’s service export industries, such as tourism and education.

Capacity pressure
Annual employment growth eased to around 3 percent over the first
half of 2015, in line with slower growth in economic activity, but remains
historically high. Strong growth in the labour force has added significantly
to the economy’s supply capacity over the past two years. At present,
the size of the labour force is growing at slightly over 3 percent per year,

20

Figure 4.12
Employment
and labour
supply growth
(annual)

2005

2007

2009

2011

2013

−3
2015

Source:  Statistics New Zealand, RBNZ estimates.

reflecting both high levels of net immigration and higher participation in
the labour force (figure 4.12).
The slight easing in employment growth and continued strength in labour
supply have resulted in labour market conditions loosening slightly
over 2015. The unemployment rate has increased to around 6 percent,
from a low of 5.5 percent in the September 2014 quarter (figure 4.13).
Nominal wage growth has remained relatively stable over the past year.
Continued low CPI inflation means that wage growth remains strong in
real terms.
Slower GDP growth over the first half of 2015 and the increased
supply capacity have contributed to decreased pressure on productive
resources since the end of 2014. The output gap is currently estimated
to be slightly below zero. This is within the range suggested by a suite
of indicators, although estimates of the output gap are always subject to
considerable uncertainty (figure 4.14).

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Figure 4.13
Unemployment rate
(percent
of labour
force, s.a.)

Pricing and inflation
7.5

%

%

7.5

7.0

7.0

6.5

6.5

6.0

6.0

5.5

5.5

5.0

5.0

4.5

4.5

4.0

4.0

3.5

3.5

3.0

2005

2007

2009

2011

2013

3.0
2015

Source:  Statistics New Zealand, RBNZ estimates.

Figure 4.14
Output gap
(percent of
potential
output)

4

%

%

4

3

3

2

2

1

1

0

0

Output
gap

−1

−1

−2

−2

−3

−5

−3

Indicator
range

−4
2005

2007

−4
2009

2011

Source:  RBNZ estimates.

2013

−5

Annual CPI inflation increased to 0.3 percent in the June 2015 quarter,
from 0.1 percent in the previous quarter. In the June quarter, annual
tradables inflation was -2 percent, and annual non-tradables inflation was
2 percent (figure 4.15).
Headline inflation has been affected by continued volatility in international
oil prices. Domestic petrol prices declined sharply from November 2014
to January 2015, before increasing through the middle of the year as oil
prices recovered, the exchange rate depreciated, and refiner margins
increased (figure 4.16). However, petrol prices have declined since June,
as oil prices have fallen back to around their lows earlier in the year.
Other tradables prices have generally remained low, mostly reflecting the
elevated exchange rate during 2014 and the beginning of 2015.
Figure 4.15
Inflation
(annual)

8

%

%

8

6

6

4

Non−tradables

2

2

0

0

Tradables

−2
−4

4

−2
2005

2007

2009

2011

2013

−4
2015

Source: Statistics New Zealand, RBNZ estimates.

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

21

 Figure 4.16
Oil and petrol
prices

US$/barrel

2.40

120

2.30

Dubai
Oil

110

2.20

100
Petrol
(RHS)

80

2.00

70

1.90

60

%

%

3.0

2.5

2.5

Surveyed
expectations

2.0

2.0

1.5

1.5

1.80

50
2012

2013

2014

2015

1.70

1.0

Source: Reuters, Ministry of Business, Innovation and Employment.

Domestic inflationary pressures remain subdued, reflecting weaker
demand and capacity pressure. Non-tradables inflation is expected to
decline further in the near term to historically low levels, although this
partly reflects temporary factors, such as the decrease in ACC motor
vehicle levies in July. A range of measures of core or underlying inflation
are also at historically low levels.
Survey measures of medium-term inflation expectations have stabilised
or increased slightly following declines during 2014 and the beginning of
2015. These measures are at a level that is consistent with CPI inflation
returning to around 2 percent in the medium term (figure 4.17). The
Reserve Bank’s estimate of long-term inflation expectations extracted
from a wide range of surveys has declined since the introduction of the
September 2012 Policy Targets Agreement,1 which introduced a focus on
the midpoint of the 1 to 3 percent inflation target range (figure 4.18). This
decline is consistent with long-term inflation expectations becoming more
anchored near 2 percent.

1

2

3

4

5

6

7

8

9

10

1.0

Source:  ANZ Bank, Aon Consulting, Consensus Economics, RBNZ estimates.
Note: 

22

3.0

2.10

90

40

Figure 4.17
Inflation
expectations
(annual, by
number of
years ahead)

$/L

130

The 1-year ahead expectation data point is a simple average of the RBNZ 1-year, Aon 1-year, and
ANZ 1-year series. The 2-year ahead expectation data point is the RBNZ 2-year series. The 4-year
ahead expectation data point is the Aon 4-year series. The 7-year ahead expectation data point is
the Aon 7-year series. The 10-year ahead expectation data point is the Consensus 10-year series.
The black line shows a curve fitted through the expectations series using a Nelson-Siegel model.

Figure 4.18
Long-term
inflation
expectations
(annual)

3.0

%

%

3.0

2.5

2.5

2.0

2.0

1.5

1.5

1.0

2005

2007

2009

2011

2013

1.0

Source:  ANZ Bank, Aon Consulting, Consensus Economics, RBNZ estimate.
1 

See Kendall, R and T Ng (2013) ‘The 2012 Policy Targets Agreement: an evolution in flexible inflation
targeting in New Zealand’, Reserve Bank of New Zealand Bulletin Vol. 76, No. 4, December 2013 for
more discussion of the 2012 Policy Targets Agreement.

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Box B
Recent discussions with the agriculture sector
The Bank regularly meets organisations across the country to
improve our industry knowledge and obtain timely information on
economic conditions. Leading up to the September Statement, Bank
representatives talked to more than 20 organisations connected to the
agriculture sector, and another 30 firms from other industries.
The aim of our discussions with the agriculture sector was to better
understand how low dairy prices will affect farmers, rural communities,
and wider activity. Since February 2014, dairy prices have fallen 55
percent, weighing on farmers’ current and prospective incomes.
The New Zealand agriculture sector accounts for 5 percent of GDP, with
primary food manufacturing accounting for an additional 4 percent of
GDP. Economic conditions in the agriculture sector can have substantial
flow-on effects to the wider economy through, for example, the transport
and business service sectors, as well as economy-wide effects on
confidence, incomes, consumption and investment.
Contacts in the agriculture sector have explicit strategies to manage dairy
price volatility and the decrease in cash flow. The longer dairy prices
remain low, the larger the required response will become. Farmers with
higher break-even prices face more pressure to make changes, and tend
to be those with higher working expenses, drawings, interest and rent
costs. For example, farmers with more intensive farming systems have
higher feed and capital costs.
Contacts note that to manage reduced cash flow, farmers have been
increasing overdraft use, and are using deferred terms and interest-free

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

loans where possible. Some farmers have sold Fonterra shares to free
up cash. Many farmers are likely to take up the Fonterra Co-operative
loan. The ability of farmers to take on new debt depends on banks’
willingness to lend, and an individual farmer’s financial situation.
Contacts also note that many farmers are having to reduce their costs.
While the ability to cut costs differs across farmers, all will be considering
the effects of changes on future milk production. Our business contacts
noted a typical sequence of responses to lower cash flow is as follows.
1. Reduce drawings.
2. Delay capital expenditure until dairy prices rise: get items repaired or
hire contractors to do work, and put off large investments.
3. Opt for cheaper feed, e.g. pasture or supplementary feeds such as
palm kernel, instead of more expensive mixed-compound feeds.
4. For farm owners, reduce labour costs by: returning to on-farm work;
not increasing wages; and starting new workers on lower wages.
5. Increase cow culling, particularly of underperforming cows.
6. Increase technical testing to determine the most cost effective use of
essential products such as fertiliser.
7. Reduce spending on artificial insemination, and milk once a day.
Contacts note that confidence in different areas of agriculture production
tends to move in sync with confidence in the dairy industry. Sheep and
beef farmers supply feed and grazing land to dairy farmers, and many
have invested in dairy farms. Increased cow culling by dairy farmers
reduces prices received for beef. Reduced demand for domestic feed
from dairy farmers is also affecting the arable industry. Contacts noted
that some offset may come from the depreciation in the exchange rate,
supporting agricultural exporters’ incomes. It was also noted that rural
suppliers may reduce prices in response to weaker demand from the
dairy industry.
23

 Chapter 5
The macroeconomic outlook
Global financial market volatility and weaker trading partner growth
are weighing on the outlook for the New Zealand economy. The outlook
for domestic demand and inflationary pressures is weaker as a result.
Further easing in monetary conditions, via a lower New Zealand dollar
exchange rate and lower interest rates, is consistent with domestic demand
recovering and inflation settling around 2 percent over the medium term.

The weaker global economic outlook affects New Zealand through a
number of channels, including through lower export prices and a lower
exchange rate. As noted in chapter 4, export prices have fallen sharply
since the start of 2014. Looking ahead, export prices are expected
to pick up only gradually over the latter half of the projection (figure
5.1). Underlying this slow recovery is continued growth in global dairy
production, together with the softer demand outlook (see chapter 3).
Figure 5.1
Real export
prices

Index

Index

1.15

Proj.

1.15

1.10

1.10

1.05

1.05

1.00

1.00

0.95

0.95

0.90

0.90

0.85

0.85

0.80

0.80

0.75
1996

1999

2002

2005

2008

2011

2014

2017

0.75

Source:  Statistics New Zealand, RBNZ estimates.
Note: 

24

World terms, s.a.

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Figure 5.2
New Zealand
dollar TWI

Index

Index

85

Projection

85

80

80

75

75

70

Figure 5.3
Core business
investment

12

%

%
Projection

12

11

11

70

10

10

65

65

9

9

60

60

55

55

8

8

50

2000

2003

2006

2009

2012

2015

50

Source: RBNZ estimates.

7

Lower projected export receipts are a key reason for the softer outlook
for domestic demand. Soft rural spending and cuts to on-farm investment
contribute to business investment falling as a share of potential output
(figure 5.3). Weaker demand throughout the rest of the economy, as
well as increased import costs from the lower exchange rate, are also
weighing on the investment outlook.
Although rural consumption is expected to be subdued, households
in the wider economy are generally expected to maintain their level of
spending, as they have in previous export-price cycles. Low interest
rates, the strong net inflow of migrants and related strength in the
housing market, and low world oil prices are expected to support

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

2003

2006

2009

2012

2015

7

Source:  Statistics New Zealand, RBNZ estimates.
Note:  

The New Zealand dollar TWI has declined 13 percent since the start
of 2015. Global uncertainty, low export prices and a lower outlook
for domestic interest rates mean that the New Zealand dollar TWI is
assumed to depreciate further – to 65 – and remain around that level for
the remainder of the projection (figure 5.2).

2000

s.a., percentage of potential output. Core business investment excludes the trending components of
total business investment, i.e. data processing equipment (computers) and intangible assets.

consumption. Overall, annual consumption growth is forecast to slow to
around 2 percent, and remain around this rate throughout the projection
(figure 5.4). One of the risks to this projection is that households pull back
their consumption more, which could happen if they expect export prices
to remain low for a longer period of time.
The lower exchange rate improves the outlook for net exports, partly
offsetting the fall in domestic demand. The lower exchange rate will help
offset the impact of lower international dairy prices by supporting New
Zealand dollar export receipts. The tourism sector is also expected to
benefit from increased tourist spending because of the lower exchange
rate.
On the import side, the lower exchange rate causes some substitution
away from imports to domestic production. Together with the weaker
outlook for business investment – which tends to be import-intensive –
the lower exchange rate means that import volumes are expected to fall
25

 Figure 5.4
Consumption
growth
(annual)

8

%

%
Projection

8

6

6

4

4

2

2

0

0

Figure 5.5
Import
volumes

30

28

28

26

26
24

−4

24

−6

22

2006

2009

2012

2015

Source: Statistics New Zealand, RBNZ estimates.

The Canterbury rebuild is expected to continue supporting domestic
activity, but by less than previously assumed. The total cost of rebuildrelated construction in Canterbury has been updated since the June
Statement based on information from a range of sources, including the
Canterbury Earthquake Recovery Authority (CERA). These updated
projections incorporate almost $40 billion (2015 dollars) of construction
spending in total – implying that about $5 billion (2015 dollars) less
work is still to come than assumed in the June Statement. Residential
construction in Canterbury is assumed to have plateaued in early
2015, a year earlier and at a lower level than previously expected. Less
commercial construction in Canterbury is also expected than previously
assumed over the projection, although this is partly offset by a greater
amount of infrastructure construction.

Projection

2000

2003

2006

2009

2012

2015

22

Source: Statistics New Zealand, RBNZ estimates.
Note: 

as a share of output (figure 5.5). The current account deficit grows to
around 6 percent of nominal GDP, as household consumption continues
to grow despite the fall in income driven by the lower terms of trade.

34

30

−4
2003

%

32

−2

2000

%

32

−2

−6

26

34

s.a., percentage of potential output. 

Nationwide construction spending is projected to remain historically
elevated. However, due to less rebuild-related construction, nationwide
construction spending is expected to peak around 1 percent of potential
output lower than in the June Statement (figure 5.6). Population growth
– especially through net immigration – continues to increase demand for
housing and contribute to a housing shortage, most notably in Auckland.
Construction spending outside Canterbury is expected to continue to
increase as a share of potential output, driven by growing residential
construction in Auckland. House price inflation is forecast to slow as more
houses become available and as net immigration declines.
The high level of net immigration and high labour force participation are
increasing the potential output of the New Zealand economy, supporting
near-term output growth. As a result, annual GDP growth is expected to
remain around 2 percent in the near term despite the weaker outlook for
demand (figure 5.7). Potential output growth is forecast to slow slightly
over the projection as net immigration declines.

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Figure 5.6
Construction
spending

13

%

%

13

12

12

Total

11

11

10

10

9

9
Ex−
rebuild

8

2000

2003

2006

2009

2012

Projection

2015

8

Source:  Statistics New Zealand, RBNZ estimates.
Note: 

s.a., percentage of potential output. Solid lines indicate the September MPS projections, dashed
lines indicate the June MPS projections.

Figure 5.7
GDP growth
(annual)

8

%

%
Projection

8

6

6

4

4
Potential

The outlook for domestic inflationary pressures is softer due to the
weaker growth outlook, together with strong potential output growth.
As discussed in chapter 4, capacity pressures are estimated to have
decreased over the first half of 2015. The output gap is projected to
remain negative over the next year and the unemployment rate to remain
around 6 percent. Reflecting spare capacity in the labour market and low
CPI inflation, nominal wage increases are forecast to remain modest.
Annual non-tradables inflation is forecast to fall below 1.5 percent in late
2015, although part of this decline is due to one-off factors such as ACC
motor vehicle levy reductions. Additional stimulus from lower interest
rates and the lower exchange rate are expected to support a recovery
in domestic demand growth from 2016, causing an increase in capacity
pressures over the medium term. Non-tradables inflation is forecast to
rise to around 2 percent in 2018 (figure 5.8). Even with this recovery, nontradables inflation remains below its historical average at the end of the
projection.
Figure 5.8
CPI inflation
components
(annual)

8

%

%
Projection

8

2

2

0

0

4

−2

2

2

−4

0

0

−2
−4

Actual

2000

2003

2006

2009

2012

Source:  Statistics New Zealand, RBNZ estimates.

2015

6

6
Non−
tradables

−2
−4

−2

Tradables

2000

2003

2006

2009

2012

4

2015

−4

Source:  Statistics New Zealand, RBNZ estimates.

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

27

 Figure 5.9
Dubai oil
price

US$/barrel

US$/barrel

120

Projection

120

100

100

80

80

60

60

40

40

20

20

0

2000

2003

2006

2009

2012

2015

0

Source: Reuters, RBNZ estimates.

The Dubai oil price is projected to gradually increase from around USD
50 per barrel currently to slightly above USD 60 by mid-2018 (figure 5.9).
Non-oil import prices are also projected to remain low, due to weaker
global demand.
Tradables inflation is forecast to rise above 2 percent in early 2016, due
to the depreciation in the exchange rate and earlier petrol price declines
dropping out of the annual rate (figure 5.8). Tradables inflation peaks
at around 3 percent at the end of 2016 and then gradually declines
towards 2 percent over the remainder of the projection. Box C discusses
the contribution of fuel and the exchange rate to the sharp pick-up in
tradables inflation in 2016.
The weaker outlook for domestic inflationary pressures means further
monetary policy stimulus is required to support domestic demand. Figure
5.10 shows the central path for the 90-day interest rate, and paths
that are 25 basis points above and below the central path. The related

28

Figure 5.10
90-day
interest rate

3.8

%

%

3.8

Projection

3.6

3.6

3.4

3.4

3.2

3.2

3.0

3.0

2.8

2.8

2.6

2.6

2.4

2.4

2.2

2012

2013

2014

2015

2016

2017

2.2

Source:  RBNZ estimates.

inflation and output gap forecasts are shown in figures 5.11 and 5.12,
assuming inflationary pressures are otherwise unchanged.
In all of the scenarios, the rise in tradables inflation in the near term
drives CPI inflation into the 1 to 3 percent target range in the first quarter
of 2016 (figure 5.11). The outlooks for CPI inflation diverge from the
middle of 2016. The lower interest rate path causes inflation to rise to
2.3 percent, whereas the higher interest rate path results in CPI inflation
settling slightly below 2 percent.
The speed and strength of the recovery in output also depends on the
policy response. In the lower interest rate scenario, GDP growth recovers
to around 2.5 percent by the end of 2016, whereas in the higher interest
rate scenario GDP growth remains close to 2 percent (figure 5.12).
The lower interest rate path generates a faster recovery in GDP growth
and results in inflation settling slightly above 2 percent over the medium

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Figure 5.11
CPI inflation
(annual)

3.5

%

%

3.5

3.0

3.0

2.5

2.5

2.0

2.0

1.5

1.5

1.0

1.0

0.5

0.5

0.0

Projection

2012

2013

2014

2015

2016

2017

2018

0.0

Source:  Statistics New Zealand, RBNZ estimates.

term. The higher interest rate path results in a slower recovery in GDP
growth, and inflation remains close to 2 percent over the medium term.
As well as forming a central projection, accounting for the inherent
uncertainty around key assumptions is necessary when setting monetary
policy. Cyclical movements around medium-term trends are useful for
forecasting inflation but are difficult to estimate precisely at any given
time, because the trends are unobservable. The output gap, which is
useful for forecasting non-tradables inflation, relies on an estimate of
potential output that is unobservable and prone to being revised. These
projections rely on a range of other trends, many of which are also
uncertain – especially around turning points. The current decline in dairy
prices has lasted 27 months, longer than the average decline over history
(17 months). Whether this dairy price decline is a cyclical change, as
assumed in the projections, or a more permanent change is uncertain.

Figure 5.12
GDP growth
(annual
average)

3.6

%

%

3.6

Projection

3.4

3.4

3.2

3.2

3.0

3.0

2.8

2.8

2.6

2.6

2.4

2.4

2.2

2.2

2.0

2.0

1.8

2012

2013

2014

2015

2016

2017

2018

1.8

Source: Statistics New Zealand, RBNZ estimates.

in monetary policy decisions, but is hard to account for in a central
projection. Reflecting this uncertainty, the Bank watches developments –
both in the data themselves and in forecast errors – for signs of changes
in trends. These assumptions are regularly reviewed and updated as the
Bank draws on new information about the state of the economy.

The uncertainty regarding key assumptions, such as the level of potential
output and the long-term trend for export prices, is a key consideration

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

29

 Box C

exchange rate to tradables prices will add around 3.5 percentage points
to tradables inflation over the next year, represented by the red bars in
figure C.1. The Bank estimates that much of the fall in the exchange rate
is due to lower export prices.

What drives the pick-up in tradables inflation?
Tradables inflation is projected to increase sharply over the first part
of the projection, from an annual rate of -2 percent in the June quarter
this year to 2.4 percent a year later. This projected increase adds 1.9
percentage points to annual CPI inflation.
Much of the pick-up in tradables inflation reflects past and expected
movements in two variables: the exchange rate and the world price of oil.

Figure C.1
Drivers of
tradables
inflation
(annual)

5

%

%

5

Exchange rate

4
3

4
3

Oil/import
prices

2

2

1

1

0

0

−1

−1

−2

Tradables
inflation

−3

−2

Other
factors

−4
−5

Global oil prices directly affect the price consumers pay for petrol at the
pump, as well as the cost of fuel-intensive imports and transport. In the
first quarter of 2015, national average petrol prices dropped sharply
to $1.87 per litre. This directly subtracted 1.3 percentage points from
tradables inflation in the quarter, which will weigh on the annual rate of
inflation until the end of 2015. From the start of 2016, this fall in petrol
prices drops out of the annual inflation rate and tradables inflation will
mechanically increase.

−3
−4

Projection

2012

2013

2014

2015

2016

2017

2018

−5

Source:  Statistics New Zealand, RBNZ estimates.
Note: 

The underlying drivers are estimated using the Reserve Bank’s structural forecasting model, NZSIM.

The New Zealand dollar TWI is projected to fall to 65 by mid-2016, from
an average of 76 during the June 2015 quarter and a peak of 80 in April.
This increases tradables inflation by raising the New Zealand dollar price
of imports. Based on past experience, the normal pass-through from the
30

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Box D
Global economic conditions and the
outlook for monetary policy
The outlook for domestic GDP growth and inflationary pressures has
softened over the past few months. To a large extent, this has reflected
a weaker outlook for economic growth in some of New Zealand’s key
trading partners. Although financial market volatility has increased in
recent weeks, at this stage a sharp deterioration in global economic
conditions appears unlikely. However, if global economic conditions
weaken further, there could be material implications for domestic
economic activity and monetary policy.
Weaker global economic conditions would reduce demand for New
Zealand’s exports, resulting in a more prolonged period of low export
commodity prices and lower export volumes. Business and consumer
confidence would decline further. In addition, global financial markets
may become disrupted as risk aversion increases. One alternative
scenario to the central projection is that global economic conditions
deteriorate further and, as a result, domestic GDP growth slows sharply
and capacity pressures in New Zealand decline (figure D.1).

Figure D.1
Output gap
(percent of
potential
output)

%

4

%

3

3

2

2

1

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

1

Sept.
MPS

0

0

−1

−1
Scenario

−2
−3

2003

2005

2007

2009

2011

2013

2015

−2
−3

2017

Source:  RBNZ estimates.

Figure D.2
90-day
interest rate

9

%

%
Proj.

9

8

8

7

7

6

6

5

5

4

Sept.
MPS

3

Compared to the central projection, the weaker outlook for domestic
capacity pressure would result in a softer outlook for domestic inflation.
As such, further monetary policy stimulus would be necessary (figure
D.2). In this scenario, the 90-day interest rate declines to around 2
percent over the next year. As global economic conditions stabilise, and
as more-stimulatory interest rates and an accompanying depreciation
in the exchange rate begin to support domestic demand, GDP growth
rebounds sharply.

4

Projection

2
1

Scenario

2003

2005

2007

2009

2011

2013

2015

4
3
2
1

Source:  RBNZ estimates.

31

 Figure D.3
Inflation
(annual)

8

%

%
Projection

Tradables

6

6
Non−
tradables

4

4

2

2

0

0

Headline

−2
−4

8

−2
2003

2005

2007

2009

2011

2013

2015

2017

−4

Source:  Statistics New Zealand, RBNZ estimates.

In this scenario, non-tradables inflation declines sharply over the next
year in response to weaker capacity pressures (figure D.3). This is
offset by higher tradables inflation in the near term, as the exchange
rate depreciates further. By the end of the projection, easier monetary
conditions drive an increase in the output gap, boosting non-tradables
inflation. As a result, CPI inflation would settle around 2 percent.

32

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Appendices
Appendix A1
Summary tables
Table A
Projections of GDP growth, CPI inflation, and monetary conditions
(CPI and GDP are percent changes, GDP seasonally adjusted)
GDP
CPI
Quarterly
Quarterly
2013
Mar
0.1
0.4
Jun
0.4
0.2
Sep
1.1
0.9
Dec
0.5
0.1
2014
Mar
1.1
0.3
Jun
0.7
0.3
Sep
1.0
0.3
Dec
0.7
-0.2
2015
Mar
0.2
-0.3
Jun
0.6
0.4
Sep
0.5
0.3
Dec
0.6
0.2
2016
Mar
0.5
0.7
Jun
0.6
0.7
Sep
0.7
0.6
Dec
0.7
0.2
2017
Mar
0.7
0.6
Jun
0.8
0.6
Sep
0.8
0.7
1

CPI
Annual
0.9
0.7
1.4
1.6
1.5
1.6
1.0
0.8
0.1
0.3
0.2
0.5
1.5
1.8
2.1
2.2
2.1
2.0
2.1

TWI
75.9
76.3
75.9
78.2
80.1
81.5
80.1
77.5
77.9
76.1
70.0
67.9
66.3
65.3
64.9
64.9
64.9
64.8
64.9

90-day
bank bill rate
2.7
2.6
2.6
2.7
3.0
3.4
3.7
3.7
3.6
3.5
3.0
2.9
2.8
2.7
2.6
2.6
2.6
2.6
2.6

Notes for these tables are published with the background data at http://www.rbnz.govt.nz/monetary_policy/monetary_policy_statement/2015/mpssep15-data.xlsx

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

33

 Table B
Measures of inflation, inflationary pressures, and asset prices
Inflation (annual rates)
CPI
CPI non-tradables
CPI tradables
Sectoral factor model estimate of core inflation
CPI trimmed mean
CPI weighted median
GDP deflator
Inflation expectations
RBNZ survey of expectations - inflation two years ahead
ANZ Bank Business Outlook - inflation one year ahead (quarterly
average to date)
AON Hewitt Economist Survey - inflation four years ahead
AON Hewitt Economist Survey - inflation seven years ahead
Pricing and costs (net balances)
ANZ Bank Business Outlook - Pricing intentions, next
three months (quarterly average to date)
QSBO Average selling prices, next three months
QSBO Average costs, past three months
Asset prices (annual percentage changes)
Quarterly house price index (CoreLogic)
REINZ Farm Price Index (quarterly average to date)
NZX 50 (quarterly average to date)

34

2013
Dec

Mar

Jun

1.6
2.9
-0.3
1.4
1.6
2.0
7.7

1.5
3.0
-0.6
1.4
1.5
1.7
5.5

2.3
2.4

2014

2015
Jun

Sep

Dec

Mar

Sep

1.6
2.7
0.1
1.4
1.7
2.2
4.5

1.0
2.5
-1.0
1.4
1.0
1.7
1.2

0.8
2.4
-1.3
1.3
0.7
1.5
-2.1

0.1
2.3
-2.8
1.3
0.2
1.6
-0.8

0.3
2.0
-2.0
1.3
0.3
1.2

2.3
2.6

2.4
2.6

2.2
2.5

2.1
2.3

1.8
1.7

1.9
1.7

1.9
1.7

2.3
2.3

2.2
2.2

2.3
2.2

2.2
2.2

2.2
2.2

2.1
2.2

2.1
2.2

2.2
2.2

26.0

31.6

27.5

22.8

21.5

25.9

23.1

19.2

23.3
21.2

37.2
19.0

33.3
19.9

29.5
21.7

11.0
23.8

6.3
18.0

6.8
16.9

9.2
5.7
20.6

8.0
9.0
16.5

6.9
15.3
14.6

4.8
3.7
12.7

6.3
1.2
12.7

8.3
2.0
16.6

2.1
12.7

5.7
11.1

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Table C

Composition of real GDP growth

(annual average percent change, seasonally adjusted, unless specified otherwise)

2008

2009

2010

Actuals
2011

Final consumption expenditure
Private
Public authority
Total

3.7
4.7
4.0

-1.6
4.0
-0.2

1.7
-0.5
1.1

2.1
2.0
2.0

2.7
1.5
2.4

2.5
-0.6
1.7

2.8
2.7
2.8

3.7
3.0
3.5

2.5
0.6
2.0

1.8
0.3
1.4

1.9
2.5
2.0

Gross fixed capital formation
Residential
Other
Total

1.8
10.0
7.7

-21.2
-2.6
-7.5

-9.0
-9.3
-9.2

1.6
3.8
3.3

-0.2
7.1
5.5

17.7
4.4
7.1

16.6
8.6
10.4

12.3
4.8
6.6

8.5
-0.8
1.6

5.6
2.2
3.1

1.4
5.5
4.4

Final domestic expenditure
Stockbuilding 1
Gross national expenditure

4.8
0.8
5.6

-2.0
-0.3
-2.3

-1.2
-0.7
-1.6

2.3
0.7
3.0

3.1
0.3
3.5

2.9
-0.4
2.4

4.5
0.2
4.8

4.2
0.2
4.5

1.9
-0.1
1.8

1.8
0.0
1.8

2.6
-0.0
2.6

Exports of goods and services
Imports of goods and services
Expenditure on GDP

3.9
10.9
3.6

-2.8
-3.6
-2.1

4.1
-9.2
2.3

2.8
11.4
0.7

2.3
6.7
2.2

3.1
1.3
2.9

0.2
8.0
2.4

3.9
7.5
3.3

3.0
0.9
2.4

0.5
-1.3
2.5

2.9
1.3
3.1

GDP (production)
GDP (production, March qtr to March qtr)

3.0
1.6

-1.6
-2.9

-0.3
1.7

1.5
1.2

2.2
2.7

2.2
1.9

2.5
3.1

3.2
2.6

2.1
2.2

2.5
2.8

3.1
3.2

March year

1

2012

2013

2014

2015

Projections
2016
2017
2018

Percentage point contribution to the growth rate of GDP.

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

35

 Table D
Summary of economic projections
(annual percent change, unless specified otherwise)
March year
Price measures
CPI
Labour costs
Export prices (in New Zealand dollars)
Import prices (in New Zealand dollars)
Monetary conditions
90-day rate (year average)
TWI (year average)
Output
GDP (production, annual average % change)
Potential output (annual average % change)
Output gap (% of potential GDP, year average)
Labour market
Total employment (seasonally adjusted)
Unemployment rate (March qtr, seasonally adjusted)
Trend labour productivity
Key balances
Government operating balance (% of GDP, year to June)
Current account balance (% of GDP)
Terms of trade (SNA measure, annual average % change)
Household saving rate (% of disposable income)
World economy
Trading partner GDP (annual average % change)
Trading partner CPI (TWI weighted, annual % change)

36

2008

2009

Actuals
2010 2011 2012

2013

2014

2015

Projections
2016 2017 2018

3.4
3.5
11.3
0.1

3.0
3.1
7.2
17.4

2.0
1.3
-7.7
-11.1

4.5
2.0
7.8
3.4

1.6
2.1
-2.8
-1.8

0.9
1.8
-5.0
-4.1

1.5
1.7
11.3
-3.3

0.1
1.8
-8.8
-3.6

1.5
1.9
-0.9
17.4

2.1
1.8
9.5
3.8

2.0
2.1
5.6
1.5

8.6
75.2

6.7
65.6

2.8
66.6

3.1
69.0

2.7
72.2

2.6
74.0

2.7
77.6

3.6
79.3

3.0
70.1

2.6
65.0

65.0

3.0
2.2
2.6

-1.6
1.7
-0.7

-0.3
1.2
-2.2

1.5
1.3
-2.0

2.2
1.5
-1.3

2.2
1.8
-1.0

2.5
2.2
-0.7

3.2
2.6
-0.1

2.1
2.5
-0.5

2.5
2.4
-0.4

3.1
2.3
0.3

1.1
3.8
1.2

-1.2
5.2
1.1

-0.4
6.2
1.0

1.6
6.6
0.9

0.6
6.8
0.8

0.2
6.3
0.7

3.7
6.0
0.6

3.2
5.8
0.6

1.4
6.1
0.6

1.5
5.9
0.7

1.9
5.4
0.8

3.0
-6.7
8.5
-1.5

-2.1
-7.1
-1.9
-1.3

-3.3
-1.5
-4.5
0.9

-9.1
-2.8
7.9
2.7

-4.4
-3.2
1.6
1.5

-2.1
-3.7
-4.3
2.3

-1.3
-2.6
11.7
2.1

-0.3
-3.7
-0.1
3.2

-0.8
-6.1
-10.6
1.7

-0.4
-6.9
-3.5
1.6

0.0
-5.0
5.1
2.8

4.2
4.2

0.3
1.6

1.2
2.2

4.5
3.2

3.5
2.7

3.2
2.3

3.5
2.3

3.6
1.0

3.6
2.1

3.9
2.2

3.8
2.4

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Appendix B
Outreach
Companies and organisations contacted by
Reserve Bank staff during the projection round
Agribusiness Personnel Ltd
Agrifirst
Auckland Council
Baker and Associates (Wairarapa) Ltd
Canterbury Development Corporation
CNS Treasury Ltd
CooperAitken Ltd
Croys Ltd
Corelogic NZ Ltd
CRS Software Ltd
Dairy NZ
Disprose Miller Ltd
Farm Forward
Farmlands Co-operative
Farmwise
Federated Farmers Christchurch
Federated Farmers Waikato
Fonterra Co-operative Group Ltd
Ganellen Construction Ltd
Grow Mid Canterbury
Humphries Construction
HW Richardson Group Ltd
IAG NZ Ltd

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

Infometrics
Johnston O’Shea
Registered Master Builders Association of New Zealand Inc
Meat Industry Association of New Zealand
Mike Greer Homes NZ Ltd
Naylor Love Construction Ltd
Ngai Tahu Property Ltd
NZ Institute of Architects
New Zealand Institute of Economic Research
Palmerston North City Council
Port Taranaki Ltd
Ravensdown Fertiliser Insurance Company Ltd
Southland Building Society
Southland District Council
Spark Telecom Ltd
Tatua Co-operative Dairy Company Ltd
Taylor Preston Ltd
The George Hotel
TSB
University of Waikato
Veda Advantage (NZ) Ltd
Villa Maria Estate Ltd
Waikato Milking Systems U.S.A. Ltd
Westpac Banking Corporation
Yunca Group
37

 Presentations June-August 2015
The Bank presented on monetary policy and related topics to the
following sectors and regions:
Business groups (5) 
Agriculture (2) 
Universities (4) 
Manufacturers and exporters 
Export development 
Economic development  
Secondary teachers association 
International finance, investors (3) 

Auckland, Wellington, Dunedin
Wellington
Auckland, Christchurch, Dunedin
Auckland
Tauranga
Taupo
Auckland
London

The Bank also speaks to a range of sectors on financial stability and
related topics. They will be reported in the November Financial Stability
Report.

38

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

 Appendix C

Appendix D

Upcoming Reserve Bank Monetary Policy

Policy Targets Agreement

Statements and Official Cash Rate releases
The Reserve Bank reserves the right to make changes, if required, due
to unexpected developments. In that unlikely event, markets and media
would be given as much warning as possible. Announcements are made
at 9.00am on the day concerned and posted to the website shortly after.
MPS releases are associated with a media conference and webcast.
2015
29 October 2015  
10 December 2015  

OCR
OCR and MPS

2016
28 January 2016  
10 March 2016  
28 April 2016  
9 June 2016  
11 August 2016  
22 September 2016  
10 November 2016  

OCR
OCR and MPS
OCR
OCR and MPS
OCR and MPS
OCR
OCR and MPS

This agreement between the Minister of Finance and the Governor of the
Reserve Bank of New Zealand (the Bank) is made under section 9 of the
Reserve Bank of New Zealand Act 1989 (the Act). The Minister and the
Governor agree as follows:

1. 

Price stability

a) 
Under Section 8 of the Act the Reserve Bank is required to conduct
monetary policy with the goal of maintaining a stable general level of prices.

b) 
The Government’s economic objective is to promote a growing,
open and competitive economy as the best means of delivering permanently
higher incomes and living standards for New Zealanders. Price stability
plays an important part in supporting this objective.

2. 

Policy target

a) 
In pursuing the objective of a stable general level of prices, the Bank
shall monitor prices, including asset prices, as measured by a range of price
indices. The price stability target will be defined in terms of the All Groups
Consumers Price Index (CPI), as published by Statistics New Zealand.

b) 
For the purpose of this agreement, the policy target shall be to keep
future CPI inflation outcomes between 1 per cent and 3 per cent on average
over the medium term, with a focus on keeping future average inflation near
the 2 per cent target midpoint.
RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015

39

 3. 

Inflation variations around target

a) 
For a variety of reasons, the actual annual rate of CPI inflation will
vary around the medium-term trend of inflation, which is the focus of the
policy target. Amongst these reasons, there is a range of events whose
impact would normally be temporary. Such events include, for example,
shifts in the aggregate price level as a result of exceptional movements in
the prices of commodities traded in world markets, changes in indirect
taxes, significant government policy changes that directly affect prices, or a
natural disaster affecting a major part of the economy.
b) 
When disturbances of the kind described in clause 3(a) arise, the
Bank will respond consistent with meeting its medium-term target.

4. 
Communication, implementation and
accountability

a) 
On occasions when the annual rate of inflation is outside the
medium-term target range, or when such occasions are projected, the Bank
shall explain in Policy Statements made under section 15 of the Act why
such outcomes have occurred, or are projected to occur, and what measures
it has taken, or proposes to take, to ensure that inflation outcomes remain
consistent with the medium-term target.

b) 
In pursuing its price stability objective, the Bank shall implement
monetary policy in a sustainable, consistent and transparent manner, have
regard to the efficiency and soundness of the financial system, and seek to
avoid unnecessary instability in output, interest rates and the exchange rate.

c) 
The Bank shall be fully accountable for its judgements and actions in
implementing monetary policy.
40

RESERVE BANK OF NEW ZEALAND/MONETARY POLICY STATEMENT, SEPTEMBER 2015