NZ market feels the pain as Reserve Bank warns of recession

The Reserve Bank of New Zealand shocked the market this afternoon with the revelation that its 75-basis-point cash rate hike could have been 100bps.

Wednesday, November 23rd 2022, 6:09PM

by BusinessDesk

In its announcement, the central bank said its committee had considered an increase in the OCR of 75 or 100bps.

“On the balance of risks, the committee agreed that a 75bp increase was appropriate at this meeting,” it said.

The official cash rate (OCR) is now at 4.25% – the highest it's been since 2008.

The Reserve Bank now expects to raise the OCR to peak at 5.5% in September – which was higher than financial markets had priced before the meeting.

This decision, combined with a global economic slowdown, will result in a recession in 2023, the central bank said.

Today, the S&P/NZX 50 Index fell 96.6 points, or 0.85%, to 11,323.40. Turnover on the main board was $195.1 million.

Peter McIntyre from Craigs Investment Partners described the rates hike as “anti-Santa”.

“It’ll be interesting to see [what happens] from now to the next meeting – and also just over the Christmas and New Year period, being such a big spending period as well – maybe they had that on their mind, to be anti-Santa,” he said.

McIntyre said while the market knew the central bank was likely to hike 75 basis points, the market “still didn’t take it too well”.

Stocks with exposure to property prices were among the worst performers on the index today, with some posting 6% and greater declines.

Aged-care provider Ryman Healthcare, which has significant amounts of debt on its balance sheet, had another bad day and fell 8.1% to $6.35.

McIntyre said this was a continuation of retirement village owner Ryman “spiralling to the dark side”.

Oceania Healthcare also reported its first-half result today, revealing its net profit had fallen 70% as the value of its properties increased at a slower pace.

However, underlying operating earnings were up 6% and Oceania said its strategy of building premium care suites, for which it can charge more than government funding, is delivering results.

Oceania was down 3.7% to 79 cents.

The Reserve Bank warned house prices had further to fall and that residential construction activity would see serious declines in the medium term.

Fletcher Building fell 2% to $5.02 and property stocks such as Kiwi Property Group and Argosy Property fell 0.6% to 90.5 cents and 3.6% to $1.21, respectively.

Travel booking software company Serko reported revenue of $19.4m, which was a 106% increase in total revenue for the six months ended Sept 30, after the end of a long travel restriction period.

The shares edged down 0.4% to $2.49 today.

The Environmental Protection Authority said this afternoon that Channel Infrastructure has been fined $169,000 due to using banned firefighting foam multiple times at Marsden Point Oil Refinery.

The EPA laid seven charges against the company under the Hazardous Substances and New Organisms Act after the foam ended up in Whangārei Harbour, and a further seven charges under the Resource Management Act.

Channel Infrastructure was down 2.1% to $1.41.

General insurer Tower reported its positive full-year results today, and although the shares had fallen more than 4% earlier in the day, shares were flat at 69 cents when the market closed.

Tower’s underlying net profit after tax, with the inclusion of large events, rose 31.2% to $27.3m in the 12 months ended Sept 30, up from $20.8m on the previous year.

The New Zealand dollar jumped 0.8% against the US dollar, trading just below 62 US cents shortly after the RBNZ meeting. The kiwi last traded that high in late August.

The kiwi dollar was trading 61.65 US cents at 3pm in Wellington, up from 61.10 cents yesterday.

Tags: Market Close