The Business Advisory Blog

The Business Advisory Blog

Insight, news and updates from Alliott NZ Chartered Accountants, Auckland New Zealand. The views expressed here are the views of the author and should be discussed in further detail should an article be relevant to your individual circumstances.

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

Anthony McIlroy
Published on

The world is a funny place

interest rates-198One minute the media tells us the world is “in general” in a recovery phase. The United States reports improving employment figures and is starting to pull back on it’s experiment of flushing the market with money in a phrase coined as quantitative easing. Heck there is even talk of them raising their interest rates.

Japan has also engaged in quantitative easing and seems to be happy with its inflationary effects.

On the flip side Greece still seems to be a burden on any possible recovery for the European Union. Zimbabwe has just dropped their currency after hyper-inflation saw their value of currency require $35,000,000,000,000,000 (that’s 35 quadrillion dollars) to buy $1US dollar and, of course, we can’t forget bubble pop of the Chinese stock market.

Back home we wrangle with the fact that there is less demand for our milk, wood and coal. But this is counter balanced to an extent by a drop in the exchange rate, and improving returns in horticulture and tourism.

Australia, as our largest trading partner, has different circumstances but the same ability to counteract the positives versus the negatives.

All of this makes for predicting interest rates quite difficult, particularly the longer-term interest rates which are impacted to a greater extent by world events.

Currently the Reserve Bank of New Zealand has been hawkish about interest rate direction.

The market is starting to price in a 25 basis point drop in September to combat some of the drop in inflationary pressure that will appear from less money coming out of the dairy sector and the decrease of purchasing demand.

As the age old saying goes, fix for a longer term if you want to de-risk yourself from chaos and confusion and give yourself control of your budgeting decisions but, if you were willing to take a greater risk, then the uncertainty in the NZ market and the world in general means fixing for shorter terms or even floating means you could capitalize on any negative sentiments that fill the market.
Regardless of whether you want to be a short or long-term player it would seem to make sense to see what the Reserve Bank says on 10 September.

Topics: currency economy Interest rates reserve bank