A monetary easing bias remains in place in New Zealand

The Reserve Bank of New Zealand (RBNZ) reduced the benchmark overnight cash rate by 25 basis points (bps) in September following two equivalent cuts in June and July, taking the key rate to 2.75%. Inflationary pressures remain weak, with the consumer price index rising by 0.3% y/y in the second quarter of 2015, well below the RBNZ's 1-3% target range. 

"We expect that another 25 bps cut to the key rate will materialize following the October 28th monetary policy meeting on the back of muted inflation and monetary authorities' preference for a weaker New Zealand dollar", notes Scotiabank.

The country's growth outlook faces risks related to the fall in key export commodity prices (dairy). Nevertheless, relatively strong domestic demand dynamics continue to support economic momentum. Strong net immigration will continue to place upward pressure on housing prices and support already high levels of construction activity. Expenditure-based real GDP rose by 2.7% y/y in the second quarter of 2015 following an equivalent expansion in the first quarter and growth will likely average around 2½% this year as a whole.