Economics blogger passed up the chance of a lifetime to get rich quick after he was made privy to RBNZ March rate cut info leak hours before it was released but decided not to profit from it
The RBNZ’s 0.25% interest rate cut at its March policy meeting was leaked by a journalist who has privileged access to the information, hours before the release of the official policy statement into the public domain.
The reporter worked for Mediaworks, an online news and entertainment portal which is given priority access to monetary policy statements (MPS) before the general public, in order to enable them to write up their stories so they are ready to publish as soon as possible after the official release.
The RBNZ allows selected reporters and analysts early access to their policy statements via a procedure called a ‘lock-up’, whereby the sensitive material is embargoed and only available to a small group of professionals.
In this case the March Statement, however, a journalist at Mediaworks shared the RBNZ statement with other colleagues and even an economics blogger who didn’t inform the central bank until after the official MPS had been published.
The kiwi fell almost 2.0% following the release of the statement, however, remarkably, although much financial gain could have been made from using the ‘insider’ information to trade with, there was no evidence that anyone illegally profited from it.
As a result of the leak the RBNZ has decided to stop that practice of releasing its policy information to selected parties before the official public release.
RBNZ likely to remain on hold at April meeting
Despite much speculation the RBNZ could follow up the surprise March cut with another 0.25% rate decrease at its April 28 meeting better than expected first quarter inflation data published on Monday April 18, beat fourth quarter results by coming out at 0.4% from the previous quarter’s 0.1%, and lessened the pressure on the RBNZ to further cut interest rates.
The central bank remains between a ‘rock and a hard place’ in terms of monetary policy as if it does not cut rates the kiwi will continue drifting higher against most counterparts as the higher interest rates in New Zealand (2.25%), compared to the rest of the G10 (0.5% in UK, 0.0% in Eurozone and 0.5-75% in USA), makes it an attractive place for international investors to put their money to work, as they stand to make a higher return. This pumps up demand for the New Zealand dollar by attracting inflows of cash.
The problem with a stronger New Zealand dollar is that it makes New Zealand exports more expensive compared to competitor countries. This has been having a negative effect on dairying in particular, which has seen much hardship in recent years, particularly now there is a slow-down in China it chief export destination.
If it cuts interest rates it will stymie the flow of cash from international investors allowing the kiwi dollar to depreciate, making New Zealand dairy and lamb exports more competitive, however, on the downside it could exacerbate the already severe housing bubble in Auckland, where prices are now the most expensive in the world according to the widely used comparison with average wages.
“The average family home in Auckland is 10 times the average household wage. When you look at wages against house price, it's the most expensive place in the world to buy a home,” according to a story on news newshub.co.nz.
Therefore the overall consensus now appears to favour the RBNZ sitting on its hands in April.