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New Zealand Debt Management
Investor Update
May 2022

The Investor Update is a monthly publication that provides a quick snapshot of the New Zealand economy, the fiscal outlook, monetary policy and the New Zealand Government Debt Market. 

Economic Update

Annual Consumer Price Index (CPI) inflation increased to a three-decade high of 6.9% in the March 2022 quarter, driven by rising commodity prices, resilient domestic demand and a tight construction sector. The New Zealand activity index also confirmed demand has remained resilient, up 1.7% on March last year. 

To reduce the risk of rising inflation expectations, the Reserve Bank of New Zealand (RBNZ) lifted the Official Cash Rate (OCR) by a further 50 bps at the April Monetary Policy Review. Interest rate expectations fell slightly following the RBNZ monetary policy decision, however, they have subsequently increased with the market now pricing in a 4% OCR by mid next year, with a 50 bps hike fully priced in for the May rate review.

A tight labour market continued in the early part of the year, with the unemployment rate remaining at a record low of 3.2% in the March 2022 quarter. Driven by high inflation and the tightness in the labour market, wage growth lifted in the quarter, with average hourly earnings rising 4.8% in the year. 

For further up to date economic indicators read the Treasury’s latest Fortnightly Economic Update.

Figure 1: Annual inflation and inflation expectations
Source: ANZ Business Outlook (ANZBO), Stats NZ, Reserve Bank of New Zealand

Fiscal Update

On 3 May, the Minister of Finance announced new fiscal rules to be put in place:
  • As the primary fiscal rule, returning the operating balance position before gains and losses (OEBGAL) to a surplus and aiming for small surpluses thereafter (in the range of 0-2% of GDP on average);
  • a new net debt measure to be introduced, which includes Crown entity borrowings, financial advances and the New Zealand Superannuation Fund.
  • a net debt ceiling that complements the OEBGAL target while allowing more fiscal space to fund high-quality capital investments that improve productivity and living standards. The net debt ceiling is set at 30% of GDP under the new measure, which is equivalent to 50% of GDP under the old net debt measure.
The Government’s new fiscal rules and the new net debt indicator are based on the Treasury’s analysis and recommendations.
The Government’s financial accounts for the nine months ended 31 March 2022 showed the operating balance before gains and losses (OBEGAL) deficit was NZ$4 billion better than forecast in the Half Year Economic and Fiscal Update (HYEFU) 2021, mainly reflecting higher core Crown tax revenue. The results of Crown entities and State-owned Enterprises were also stronger than expected. Meanwhile, both core Crown residual cash and net core Crown debt were close to forecast.

Government Bond Market Developments

The recently published May Tender Schedule stated that Inflation-Indexed Bond (IIB) tenders are scheduled for 12 May 2022 and 26 May 2022.  As previously announced, IIB demand from market participants will be assessed on the Monday prior to a scheduled IIB tender. The information received will contribute to the decision to hold that tender, and the volume and the IIB maturity date(s) to be offered. If your organisation would like to provide feedback, please email or NZDM would be happy to facilitate a call if preferred.
An update to the core Crown borrowing programme will take place alongside the Budget Economic and Fiscal Update on 19 May 2022.

COVID-19 Update

COVID-19 cases have reduced to be consistently below ten thousand per day, as New Zealand moved to the ‘orange’ setting under the COVID-19 Protection Framework, where social distancing restrictions are limited. The country’s border has also been steadily reopening, with vaccinated international travellers from visa waiver countries now able to enter.

Upcoming Events

Budget Economic and Fiscal Update - 19 May 2022
Core Crown Borrowing Programme Update - 19 May 2022
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