RBNZ likely to stand pat on policy today

Today Reserve Bank of New Zealand (RBNZ) will announce its monetary policy around 21:00 GMT. Over the past year or so, RBNZ has reduced rates from 3.5 percent to 2 percent, which is an all-time low, however, the bank is unlikely to stop, nor are the speculators. But for today, especially after New Zealand Governor Wheeler indicator slower approach to rate cuts, today the central bank is expected to stand pat. In a speech at Dunedin on 22nd August indicated that the bank is not advocating inaction but he doesn’t see the need for rapid easing.

RBNZ on the other hand, is sure to be in a bit of a trouble. If it just wants to weaken the currency (main motto) which is clearly hurting the economy at this vulnerable stage, so we expect the commentaries to remain dovish for now.

Let’s see how the economy and inflation has been doing in the recent past,

• Over the past three-quarters, the inflation rate in New Zealand has averaged below 0.4 percent.
• GDP growth has been relatively small. It grew 0.7 percent in the first quarter and 0.9 percent in the second quarter. The unemployment rate is low at 5.1 percent but improvements may take place if GDP growth accelerates.
• Dairy farmers are suffering from costlier kiwi dollar.  However, recently the dairy prices have posed a comeback. Trade deficit remains wide.
• Biggest risk remains speculations in the housing market but addressing the issue using regulations is definitely much effective than interest rate lock. At least, experience from Australia’s housing market suggests so.

New Zealand dollar is awaiting judgment at 0.733 against the dollar. We expect the kiwi to test 0.8 area against the dollar in the near to medium term.