RBNZ monetary policy – assessing the bias

Reserve bank of New Zealand (RBNZ) has reduced policy rates today by 25 basis points and brought the overnight cash rate (OCR) to 2.5%. New Zealand Dollar, moved up despite policy reduction as market is expecting a big pause in further rate from here.

So, it is vital to see how the bias stand 

• RBNZ notes that global growth is below average and inflation is low, despite highly stimulatory monetary policies (dovish bias/skepticism perhaps).
• Weaker growth in emerging market, China. (dovish bias)
• Growth in New Zealand economy has softened over 2015, thanks to lower terms of trade. (dovish bias/weaker Kiwi bias)
• Expects better growth over next year due to recent export price improvement, domestic demand. (hawkish)
• Recent appreciation in Kiwi not helpful, further depreciation is appropriate. (dovish/very weaker kiwi bias)
• House price inflation in Auckland, financially destabilizing. Only early signs that inflation is moderating due to regulatory measures taken. (neutral to mild hawkish)
• Inflation is below target range of 1-3%, but likely to move within range by early 2016, due to effects of lower Kiwi and diminishing effect of lower oil price. (mild hawkish)
• Risks are low dairy price for longer, draught due to EL-Nino, net high immigration, rise in household expenditure on back of higher house prices.

However all that dovish bias evaporated, when RBNZ indicated that it expects current easing of rates to 2.5%, should be sufficient to achieve the target.

That explains Kiwi's jump. Kiwi is currently trading at 0.674 against Dollar.

So, with such explicit indications, RBNZ is likely to stay put for next six months at least or more.