Menu

Search

  |   Commentary

Menu

  |   Commentary

Search

RBNZ monetary policy: Assessing future bias

Reserve Bank of New Zealand (RBNZ) announced monetary policy last night and kept its key overnight cash rate unchanged at 1.75%.

Let’s look at the policy statement details to assess the bias –

  • According to RBNZ policy makers, global economic growth increased and became more broad-based but wage growth subdued due to surplus capacity. Bond yields low, credit spreads narrowed and stock prices at a record high. (Neutral bias)
  • It notes that the exchange rate increased since May monetary policy largely due to a weaker dollar. RBNZ feels that a lower exchange rate needed to increase tradable inflation and deliver balanced growth. (Dovish bias)
  • Growth in March quarter weaker than expected adding to the softening of growth observed in 2016. Growth is expected to improve going forward, supported by accommodative monetary policy, strong population growth, elevated terms of trade, and the fiscal stimulus outlined in Budget 2017. (Mild Hawkish bias)
  • Annual CPI inflation eased in the June quarter but remains within the target range.  Headline inflation likely to decline in coming quarters as the effects of higher fuel and food prices dissipate.  The outlook for tradable inflation weak.  Non-tradable inflation remains moderate but is expected to increase gradually as capacity pressure increases, bringing headline inflation to the midpoint of the target range over the medium term.  Longer-term inflation expectations remain well anchored at around 2 percent. (Mild dovish bias)
  • RBNZ welcomed the recent moderation in house prices, due to loan-to-value ratio restrictions, affordability constraints, and a tightening in credit conditions. RBNZ expects moderation to persist but the risk remains due to population growth and resource constraints. (Neutral bias)
  • Monetary policy will remain accommodative for a considerable period.  Numerous uncertainties remain, and policy may need to adjust accordingly. (Neutral bias).

Compared to the previous statement, today’s one is much more dovish in nature. With this statement, we expect a long pause from the RBNZ, unless the current global outlook changes materially, in terms of trade, commodity prices, and political uncertainties.

An increase of dovish tone in the policy statement has pushed kiwi lower, which is currently trading at 0.727 against the dollar.

 

  • Market Data
Close

Welcome to EconoTimes

Sign up for daily updates for the most important
stories unfolding in the global economy.