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Reserve bank of New Zealand (RBNZ) is clearly losing its aggressive mood, which it had shown so far. However, that may not do well for New Zealand economy as it can both use weak Kiwi and lower interest rates.
- Latest monetary policy statement suggests that RBNZ is concern over the cost side of loose monetary policy, which can lead to higher home prices in New Zealand. Though property prices in some areas of Auckland may have been approaching bubble region, however that is more to do with foreign flows than to lower interest rates. RBNZ do mentioned that situation is being tackled with higher LVR and taxes. Though weak New Zealand Dollar is contributing to the flow, at the moment stronger Kiwi is not at all desirable, instead stringent regulatory approaches should be fine to deal with that.
- Stronger Kiwi would prove more undesirable, given the fact European Central Bank (ECB) preparing for next round of easing.
- RBNZ expects CPI to return well within target range of 1-3% by early 2016. Looking at current CPI at 0.4% and oil price that doesn't seem to be the case.
RBNZ lastly mentioned that further easing seems likely but broadly speaking hawkish language have weakened considerably.
It is definitely makes sense, RBNZ's preference to wait and approach, however loosening the communication bias would do more damage than not.
New Zealand Dollar however has weakened, trading at 0.667, thanks to strong Dollar and hawkish FED.
