Interest cut unlikely after record trade figures

By Phil Boeyen, ShareChat Business News Editor

Thursday 28th June 2001

The possibility of a further Reserve Bank interest cut is doubtful after a much better than expected merchandise trade surplus for May.

Provisional estimates from Statistics New Zealand put the May surplus at $652 million. Merchandise exports were valued at $3.22 billion while imports stood at $2.568 billion.

HSBC senior economist, Grant Fitzner, says the 14% surge in exports saw New Zealand post its largest merchandise trade surplus on record, easily eclipsing the previous record high of $521 million in March 1993.

He says it was also well above April's revised $375 million surplus, more than double market expectations, and almost four times the $173 million surplus in May 2000.

The biggest increases in imports in May were machinery and equipment and fertilisers, while the largest decline was in petroleum products.

"The record May trade surplus adds to upside risks to the medium-term growth outlook for New Zealand, and reduces further the already fairly low chance of an RBNZ rate cut at next Wednesday's official cash rate review," says Mr Fitzner.

Chances of another cut are also likely to be tempered by today's US Federal Reserve cut of a quarter-percent, which was smaller than the half-percent cut some forecasters have been predicting.

Deutsche Bank senior economist, Darren Gibbs, says the merchandise trade surplus easily exceeded the bank's expectation of $350 million and the median market expectation of $318 million.

"The annual balance appears likely to move into surplus when the June data are published this time next month. This will be the first annual trade surplus (merchandise trade basis) since April 1995."

Mr Gibbs says favourable price movements for exports, driven by increases in world prices and the weaker kiwi dollar, are likely to be behind most of the improvement in the value of exports.

Deutsche Bank is also doubtful that the Reserve Bank will cut interest rates further next month.

"Together with yesterday's robust consumer confidence and building consents data, today's data provides further evidence to suggest that the New Zealand economy is continuing to weather the global slowdown in good shape, further reducing the already very small chance of a 25bps rate cut by the RBNZ on 4 July."

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