OCR 29 January stocks

What will the Reserve Bank do on 29 January?

Covers stocks OCR.100.29JAN, OCR.75.29JAN, OCR.50.29JAN, OCR.25.29JAN, and OCR.OTHER.29JAN.

I'm thinking they will match the last cut to the OCR, and go with a 150 point cut.

To go with more than about .75% will not leave the Reserve Bank with much to play with later and it is of note that on going heavy slashing of rates elsewhere around the world have not achieved much.

[www.nbr.co.nz]

Quote

The Reserve Bank’s benchmark rate will drop by at least 100 basis points – and up to 150bp – according to bank economists spoken to NBR.

[www.nzherald.co.nz]

Quote

This morning's result, along with the outlook, left the Reserve Bank with " plenty of scope to cut the OCR by 100bp (one percentage point) on January 29."

UBZ NZ economist Robin Clements said he doubted today's inflation number would make much difference for the Reserve Bank.

"Inflation was expected to tumble as petrol prices reversed and this process is now underway. While the exchange rate decline will impact on some prices in early 2009, soft demand conditions will reduce firms'
pricing power. "

After last week's shocking business confidence survey, Clements and UBS shifted to anticipating a 100bp cut (previously 50bp) at next week's Reserve Bank OCR review. The OCR currently stands at 5 per cent.

He is now also forecasting two cuts of 50 basis points each, in March and April, leaving the OCR at 3 per cent.

Looks like It's set to be 100. I'm buying up.

Edit: I'd be quite interested to hear Eric Crampton's thoughts on this stock



Edited 1 time(s). Last edit at 01/26/2009 08:41AM by kingkarl.

I bought both 100 and Other a few weeks back when they were cheap; sold both when the prices reached 90 cents for the sum of the two. Made a bit on that, but not a ton as I didn't buy enough of them.

I wouldn't put much weight on the "not much room to move later" argument: they're trying to push rates to where they reckon they need to be as quickly as they can. I'm not sure that "room to move later" makes much sense. Change the argument instead to "let's try a smaller cut and see if it works; if not, let's cut more later", and I can imagine that making sense. But if they think that the economy needs a cut of X, doing only X/2 to leave room to move later seems odd.

If I had any sense of whether it would be 100 points or 125/150, I'd be buying position. As it stands, I'm staying out. 95% chance that it's one of those two outcomes seems about right. I might lean slightly to 100 over 125/150, but I'm worried enough that it's just my wishful thinking that I've stayed out.

I believe the cut could be 100 / 150, however I'm not ruling out Bollard's conservative nature and will also look at 75 point cut ( I know its not picked by industry analysts).

I'm not long or short on any OCR stocks yet. I'm going to leave it until Wed Night or early Thursday morning to take a guess.

I think the banks are pushing their own agenda, and the rapidly falling dollar (even with a present interest rate advantage) needs to be considered also, so a smaller cut is more likely than a larger one. With a 150 pt cut we could see the dollar below 40c US, and inflation going mental as a result, so the reserve bank is likely to be cautious.

I am however mega long on 50 and 25, having bought a load at very low prices, so my opinions may be a little biased...

This has definitely become too hard for me to pick now. Selling up all my 100 stocks as i just don't want to risk the money on something so uncertain. Unless there are some bargains to be snapped up late Wednesday/early Thursday my involvement in this stock is over. Good riddance too, I've lost around $300 from it.

Fingers crossed I don't have to kick myself on Thursday morning!

The RBNZ is breaking pattern again by having a press conference... this may indicate a bigger cut? [www.stuff.co.nz]

Well yes, but the press conference is normally there to allow Bollard to answer any media questions, Many people pick 100 points or 150 points as the cut right?

Now if Bollard was to cut by only 75, or 50 even... with more gradual cuts throughout the year naturally there would be many questions and such a press conference could allow him to provide understanding to the press.

He could be cutting at a slower rate in order to stop the any dramatic fall of the NZ dollar. If he cuts but a greater that expected amount (say 150) it shows our currency weaker than anticipated and will therefore cause the dollar to drop. However a more gradual drop of 75 would strengthen our dollar and allow for maybe 2 more drops of 75 later... rather than 100 now and 50 the next two times, which is expected.

So who knows... could go any which way, I'm not ruling anything out...

Still not sure which to back yet myself

Moved before the announcement.

Price moved 4 minutes before the announcement. Somebody had a crystal ball!

I suppose someboday has to get the data ahead of time, someone on the board or in the media? Some documents must have had to be typed up prior to the release? Maybe someone has an inside contact?

There goes my theory of a smaller cut

Time to buy some of the inflation stocks, methinks.