Westpac Head Upbeat About New Zealand Economy

Westpac Banking Corp’s New Zealand unit chief executive David McLean remains upbeat about the New Zealand economy and said there is a risk the central bank could lift rates late this year rather than next.

“We are still pretty confident about the economy. We think we will have one of the higher GDP growth rates in the western world going forward,” McLean said, Scoop reported.

He said while the bank does not expect the central bank to increase the cash rate at Thursday’s monetary policy review “we do see that there is more risk around rises in interest rates toward the end of the year.” That view is out of step with the vast majority of economists who don’t expect rates to rise until well into 2019 in line with the central bank’s own forecast.

The central bank’s most recent forecast from February showed the official cash rate rising to 1.9% in June 2019, unchanged from its prior projection in November. A full rate increase is still signaled by March 2020 when the benchmark rate is forecast to be 2%. Markets are expecting the first hike in June.

McLean said the risk of rate increases was higher “particularly when you look at the global situation,” noting rates have lifted in the US and the bank bill rate in Australia has risen quite steeply.

“There is much more tone globally around interest rate rises which will probably flow through, we think, to New Zealand at some stage,” he said. “If anything the risk around rate rises is coming forward a little bit.”

He made the comments after the bank lifted first-half cash earnings of 4% as it fattened margins and cut costs with a transformation program that’s introduced greater self-service and shut down several branches. Cash earnings, the preferred measure of the Australian-owned banks, rose to $482 million in the six months to March 31 from $463 million the same period a year earlier, the Sydney-based lender said in a statement.

Net interest margin widened 9 basis points to 2.15% as the bank benefited from repricing certain mortgages and business loans, while its expense-to-income ratio fell to 40.15% from 44.35% in the same period a year earlier. Operating costs fell 4% to $468 million due to a transformation program including increased self-service and digitization of activity. Westpac closed six New Zealand branches in the period.