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RBNZ likely to stand pat on policy today

Today Reserve Bank of New Zealand (RBNZ) will announce its monetary policy at 20:00 GMT. Over the past two years or so, RBNZ has reduced rates from 3.5 percent to 1.75 percent, which is an all-time low, however, the bank is unlikely to push a lot further, though it has some more room to do so. However, as it has indicated in the recent past that RBNZ would follow a slower path to monetary policy, a change is unlikely.

RBNZ is likely to play it cautious, as the inflation rose last year across the world, along with a recovery in commodity prices but recently lost some momentum. In addition to that, when major central banks are planning to wind up these extraordinary stimulus measures, RBNZ is not likely to stand out with additional easing or promise of additional easing.

As RBNZ would not like to fuel the Kiwi dollar higher, we expect the commentaries to remain dovish for now.

The rate decision would follow press conference at 21:00 GMT.

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

  • After remaining at 0.4 percent in the first three quarters, inflation rose to 1.3 percent in the fourth quarter of last year and it rose further to 2.2 percent in the first quarter of this year. However, it has declined to 1.7 percent in the second quarter, only to rise to 1.9 percent in the third.
  • GDP growth has been relatively small. The economy grew 0.7 percent in the first quarter, grew by 0.8 percent in the next two quarters and by 0.4 percent in the final quarter of 2016.In the first quarter of this year, GDP grew by 0.6 percent on a quarterly basis, up 2.5 percent from a year ago. In the third quarter, GDP grew by 0.8 percent q/q and 2.5 percent on a yearly basis.
  • The unemployment rate is low at 4.6 percent but further improvements may take place if GDP growth accelerates.
  • Dairy farmers are suffering from costlier kiwi dollar.    The recent fading of last year’s strength in the dairy price causing major concerns.
  • Biggest risk remains speculations in the housing market but RBNZ admitted that addressing the issue using regulations is definitely much effective than the interest rate. At least, the experience from Australia’s housing market suggests so.

New Zealand dollar is awaiting judgment at 0.692 against the dollar.

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