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If central banks don't start cutting them soon, it could actually increase inflation 
At yesterday’s meeting, Reserve bank of New Zealand (RBNZ) kept monetary policy unchanged with overnight cash rate at 1.75 percent.
Let’s see in the monetary policy, how the bias stands for future actions,
- Economic growth and employment robust in New Zealand. (hawkish bias)
- CPI inflation below the 2 percent mid-point target due, in part, to recent low food and import price inflation, and subdued wage pressures. Emerging capacity constraints are projected to see New Zealand’s consumer price inflation gradually rise to our 2 percent annual target. (Mild dovish bias)
- The recent growth in demand has been delivered by an unprecedented increase in employment. The number of willing workers continues to rise, especially with more female and older workers choosing to participate. Likewise, net immigration has added to the supply of labor, and the demand for goods, services, and accommodation. (Mild hawkish bias).
- Global economic growth is forecast to continue supporting demand for New Zealand’s products and services. At home, ongoing spending and investment, by both households and government, is expected to support economic growth and employment demand. Business investment should also increase due to emerging capacity constraints. (neutral to mild hawkish bias)
- The Official Cash Rate (OCR) will remain at 1.75 percent for some time to come. The direction of our next move is equally balanced, up or down. Only time and events will tell. (Mild dovish bias)
Compared to the previous statement, this one is more hawkish on balance.
The statement clearly suggests that RBNZ is in no hurry to follow other central banks such as the U.S. Federal Reserve in increasing rates. Nevertheless, as the monetary policy slowly tilts towards being hawkish, the next move is likely to be a hawkish one. In the short statement, RBNZ dropped its reference of stronger Kiwi dollar. Expect no major changes even hint in the first three quarters 2018. The Kiwi dollar is currently trading at 0.691 against the USD.
