RBNZ monetary policy preview

Today Reserve Bank of New Zealand (RBNZ) will announce after meeting monetary policy decisions at 20:00 GMT.

Economic condition 

• New Zealand's economy overall remained robust throughout past years however started facing headwinds due to slow down in China and Europe, two of its major importer.
• Dairy and other soft commodities have risen recently from their year long slump. However latest trade balance report showed not only revenue from dairy export slipped but volume has dropped too.                  
• GDP growth has slowed to 2.4% y/y and 0.4% on quarterly basis. Unemployment still low at 5.9% but grew from recent 5.4%.
• As of latest report, New Zealand economy recorded more than 1 billion Dollar trade deficit for two consecutive months, with trade balance falling to lowest level in a year.
• Debt level is sustainable at close to 36% of GDP.
• Current account has deteriorated to -3.3% of GDP.
• Inflation remained subdued and grew only by 0.40% after averaging above 1.5% last year.

RBNZ stance

• RBNZ has lowered interest rates from 3.5% to 2.75%, however it is still the highest among developed world.

• RBNZ has hinted that it stands ready to take further action, which would be reduction in policy rates.

• However, last monetary policy showed RBNZ concern over real estate sector, where prices are rising sharply and lower rates might further push it up.

Expectation and impact 

• New Zealand Dollar sharply appreciated more than 500 pips against Dollar and more so against Euro as FED kept policy on hold in September and ECB hinted monetary policy.

• No rate cut is expected today, though RBNZ might reduce rate by another 25 basis points in December.

• A rate cut today would lead to heavy fall in Kiwi, since a move today isn't expected. Main focus will be on statement for further cues. 

New Zealand Dollar is currently trading at 0.672 against Dollar.